Form 10-Q CLARIVATE Plc For: Jun 30
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E-mailUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
For the quarterly period ended June 30, 2022
For the transition period from _________ to _______
Commission File No. 001-38911
(Exact name of registrant as specified in its charter)
| N/A | |||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
(Address of principal executive offices) | Not applicable (Zip Code) | ||||
Registrant's telephone number, including area code: +44 207 4334000
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||||||
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,”
“accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☒ | Accelerated filer | ☐ | ||||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||||||||
| Emerging growth company | ||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ☐ No ☒
The number of ordinary shares of the Company outstanding as of July 29, 2022 was 673,490,484 .
DOCUMENTS INCORPORATED BY REFERENCE
None
TABLE OF CONTENTS
| Page | |||||
2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements,” within the meaning of the "safe harbor provisions" of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “seeks,” “projects,” “intends,” “plans,” “may,” “will” or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this quarterly report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, anticipated cost savings, results of operations, financial condition, liquidity, prospects, growth, strategies and the markets in which we operate. Such forward-looking statements are based on available current market material and management’s expectations, beliefs and forecasts concerning future events impacting us. Factors that may impact such forward-looking statements include:
•any significant disruption in or unauthorized access to our computer systems or those of third parties that we utilize in our operations, including those relating to cybersecurity or arising from cyber-attacks;
•our ability to maintain revenues if our products and services do not achieve and maintain broad market acceptance, or if we are unable to keep pace with or adapt to rapidly changing technology, evolving industry standards, macroeconomic market conditions and changing regulatory requirements;
•our loss of, or inability to attract and retain, key personnel;
•our ability to comply with applicable data protection and privacy laws;
•the effectiveness of our business continuity plans;
•our dependence on third parties, including public sources, for data, information and other services, and our relationships with such third parties;
•increased accessibility to free or relatively inexpensive information sources;
•our ability to derive fully the anticipated benefits from organic growth, existing or future acquisitions, joint ventures, investments or dispositions;
•our ability to compete in the highly competitive industry in which we operate, and potential adverse effects of this competition;
•our ability to maintain high annual revenue renewal rates;
•the strength of our brand and reputation;
•our exposure to risk from the international scope of our operations, and our exposure to potentially adverse tax consequences from the international scope of our operations and our corporate and financing structure;
•our substantial indebtedness, which could adversely affect our business, financial condition, and results of operations;
•volatility in our earnings due to changes in the fair value of our outstanding warrants each period; and
•other factors beyond our control.
The forward-looking statements contained in this quarterly report are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks and uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Item 1A. Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of the assumptions prove incorrect, actual results may vary in material
3
respects from those projected in these forward-looking statements. We will not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
Note on Defined Terms and Presentation
We employ a number of defined terms in this quarterly report for clarity and ease of reference, which we have capitalized so that you may recognize them as such. As used throughout this quarterly report, unless otherwise indicated or the context otherwise requires, the terms “Clarivate,” the “Company,” “our,” “us” and “we” refer to Clarivate Plc and its consolidated subsidiaries; “Baring” refers to the affiliated funds of Baring Private Equity Asia Pte Ltd that from time to time hold our ordinary shares; “LGP” refers to affiliated funds of Leonard Green & Partners, L.P. that from time to time hold our ordinary shares; “Onex” refers to the affiliates of Onex Partners Advisor LP that from time to time hold our ordinary shares; "CIG" refers to affiliate funds of Cambridge Information Group that from time to time hold our ordinary shares; and "Atairos" refers to the affiliates of Atairos that from time to time hold our ordinary shares.
In the current year, the Company has changed its presentation of dollar amounts from thousands to millions and, as a result, any necessary rounding adjustments have been made to prior year disclosed amounts. Unless otherwise indicated, dollar amounts throughout this quarterly report are presented in millions of dollars, except for share and per share amounts.
Website and Social Media Disclosure
We use our website (www.clarivate.com) and corporate Twitter account (@Clarivate) as routine channels of distribution of company information, including news releases, analyst presentations, and supplemental financial information, as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD promulgated by the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Securities Act”) and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, investors should monitor our website and our corporate Twitter account in addition to following press releases, SEC filings, and public conference calls and webcasts. Additionally, we provide notifications of news or announcements as part of our investor relations website. Investors and others can receive notifications of new information posted on our investor relations website in real time by signing up for email alerts.
None of the information provided on our website, in our press releases, public conference calls, and webcasts, or through social media channels is incorporated into, or deemed to be a part of, this quarterly report or in any other report or document we file with the SEC, and any references to our website or our social media channels are intended to be inactive textual references only.
4
PART I. Financial Information
Item 1. Financial Statements and Supplementary Data
CLARIVATE PLC
Condensed Consolidated Balance Sheets (Unaudited)
(In millions, except share and per share data)
| June 30, 2022 | December 31, 2021 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Accounts receivable, net | |||||||||||
| Prepaid expenses | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Other intangible assets, net | |||||||||||
| Goodwill | |||||||||||
| Other non-current assets | |||||||||||
| Deferred income taxes | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Total Assets | $ | $ | |||||||||
| Liabilities and Shareholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Current portion of deferred revenues | |||||||||||
| Current portion of operating lease liability | |||||||||||
| Current portion of long-term debt | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Warrant liabilities | |||||||||||
| Non-current portion of deferred revenues | |||||||||||
| Other non-current liabilities | |||||||||||
| Deferred income taxes | |||||||||||
| Operating lease liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Shareholders’ equity: | |||||||||||
Preferred Shares, | |||||||||||
Ordinary Shares, | |||||||||||
Treasury shares, at cost; | ( | ( | |||||||||
| Accumulated other comprehensive (loss) income | ( | ||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total shareholders’ equity | |||||||||||
| Total Liabilities and Shareholders’ Equity | $ | $ | |||||||||
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
5
CLARIVATE PLC
Condensed Consolidated Statements of Operations (Unaudited)
(In millions, except share and per share data)
| Three Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Revenues, net | $ | $ | |||||||||
| Operating expenses: | |||||||||||
| Cost of revenues | |||||||||||
| Selling, general and administrative costs | |||||||||||
| Depreciation and amortization | |||||||||||
| Restructuring and impairment | |||||||||||
| Other operating (income) expense, net | ( | ( | |||||||||
| Total operating expenses | |||||||||||
| Income (loss) from operations | ( | ||||||||||
| Mark to market (gain) loss on financial instruments | ( | ||||||||||
| Income (loss) before interest expense and income taxes | ( | ||||||||||
| Interest expense and amortization of debt discount, net | |||||||||||
| Income (loss) before income taxes | ( | ||||||||||
| Provision for income taxes | |||||||||||
| Net income (loss) | ( | ||||||||||
| Dividends on preferred shares | |||||||||||
| Net income (loss) attributable to ordinary shares | $ | $ | ( | ||||||||
| Per share: | |||||||||||
| Basic | $ | $ | ( | ||||||||
| Diluted | $ | $ | ( | ||||||||
| Weighted average shares used to compute earnings per share: | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
6
CLARIVATE PLC
Condensed Consolidated Statement of Operations (Unaudited)
(In millions, except share and per share data)
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Revenues, net | $ | $ | |||||||||
| Operating expenses: | |||||||||||
| Cost of revenues | |||||||||||
| Selling, general and administrative costs | |||||||||||
| Depreciation and amortization | |||||||||||
| Restructuring and impairment | |||||||||||
| Other operating (income) expense, net | ( | ||||||||||
| Total operating expenses | |||||||||||
| Income (loss) from operations | ( | ||||||||||
| Mark to market gain on financial instruments | ( | ( | |||||||||
| Income (loss) before interest expense and income taxes | ( | ||||||||||
| Interest expense and amortization of debt discount, net | |||||||||||
| Income (loss) before income taxes | ( | ||||||||||
| Provision for income taxes | |||||||||||
| Net income (loss) | ( | ||||||||||
| Dividends on preferred shares | |||||||||||
| Net income (loss) attributable to ordinary shares | $ | $ | ( | ||||||||
| Per share: | |||||||||||
| Basic | $ | $ | ( | ||||||||
| Diluted | $ | ( | $ | ( | |||||||
| Weighted average shares used to compute earnings per share: | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
7
CLARIVATE PLC
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(In millions)
| Three Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||
| Interest rate swaps | |||||||||||
| Defined benefit pension plans | |||||||||||
| Foreign currency translation adjustment | ( | ||||||||||
| Total other comprehensive (loss) income, net of tax | ( | ||||||||||
| Comprehensive loss | $ | ( | $ | ( | |||||||
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||
| Interest rate swaps | |||||||||||
| Defined benefit pension plans | |||||||||||
| Foreign currency translation adjustment | ( | ||||||||||
| Total other comprehensive (loss) income, net of tax | ( | ||||||||||
| Comprehensive loss | $ | ( | $ | ( | |||||||
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
8
CLARIVATE PLC
Condensed Consolidated Statements of Changes in Equity (Unaudited)
(In millions)
| Ordinary Shares | Preferred Shares | Treasury Shares | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Shareholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of EBT Shares | ( | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Shares returned to the Company for net share settlements | ( | ( | — | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Share-based award activity | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of ordinary shares | ( | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Retirement of treasury shares | ( | — | — | ( | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Sale of treasury shares | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends to preferred shareholders | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Shares returned to the Company for net share settlements | ( | ( | — | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Share-based award activity | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of ordinary shares | ( | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Retirement of treasury shares | ( | — | — | ( | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Sale of treasury shares | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends to preferred shareholders | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
CLARIVATE PLC
Condensed Consolidated Statements of Changes in Equity (Unaudited)
(In millions)
| Ordinary Shares | Preferred Shares | Treasury Shares | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Shareholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | — | $ | — | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||
| Exercise of Private Placement Warrants | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares returned to the Company for net share settlements | ( | ( | — | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of ordinary shares, net | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Share-based award activity | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | — | $ | — | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Shares returned to the Company for net share settlements | ( | ( | — | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of ordinary shares, net | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Share-based award activity | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of ordinary shares | — | — | — | — | ( | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Retirement of treasury shares | ( | ( | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of preferred shares, net | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||||
10
CLARIVATE PLC
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In millions)
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash Flows From Operating Activities | |||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Deferred income taxes | ( | ( | |||||||||
| Share-based compensation | |||||||||||
| Restructuring and impairment | ( | ||||||||||
| Loss (gain) on foreign currency forward contracts | ( | ||||||||||
| Mark to market adjustment on contingent shares | ( | ||||||||||
| Mark to market gain on financial instruments | ( | ( | |||||||||
| Amortization of debt issuance costs | |||||||||||
| Other operating activities | ( | ||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | |||||||||||
| Prepaid expenses | ( | ( | |||||||||
| Other assets | ( | ||||||||||
| Accounts payable | ( | ||||||||||
| Accrued expenses and other current liabilities | ( | ||||||||||
| Deferred revenues | ( | ( | |||||||||
| Operating lease right of use assets | |||||||||||
| Operating lease liabilities | ( | ( | |||||||||
| Other liabilities | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash Flows From Investing Activities | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Acquisitions, net of cash acquired | ( | ||||||||||
Acquisition of cost method investment | ( | ||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash Flows From Financing Activities | |||||||||||
| Proceeds from issuance of debt | |||||||||||
| Principal payments on term loan | ( | ( | |||||||||
| Payment of debt issuance costs and discounts | ( | ( | |||||||||
| Proceeds from issuance of preferred shares | |||||||||||
| Proceeds from issuance of ordinary shares | |||||||||||
| Proceeds from issuance of treasury shares | |||||||||||
| Repurchases of ordinary shares | ( | — | |||||||||
| Cash dividends on preferred shares | ( | — | |||||||||
| Proceeds from stock options exercised | |||||||||||
| Payments related to finance lease | ( | — | |||||||||
| Payments related to tax withholding for stock-based compensation | ( | ( | |||||||||
| Net cash (used in) provided by financing activities | ( | ||||||||||
| Effects of exchange rates | ( | ||||||||||
| Net (decrease) increase in cash and cash equivalents | $ | ( | $ | ||||||||
| Net (decrease) increase in restricted cash | ( | ||||||||||
| Net (decrease) increase in cash and cash equivalents, and restricted cash | ( | ||||||||||
11
CLARIVATE PLC
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In millions)
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Beginning of period: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Total cash and cash equivalents, and restricted cash, beginning of period | |||||||||||
| End of period: | |||||||||||
| Cash and cash equivalents | |||||||||||
| Restricted cash | |||||||||||
| Total cash and cash equivalents, and restricted cash, end of period | $ | $ | |||||||||
| Supplemental Cash Flow Information: | |||||||||||
| Cash paid for interest | $ | $ | |||||||||
| Cash paid for income tax | $ | $ | |||||||||
| Capital expenditures included in accounts payable | $ | $ | |||||||||
| Non-Cash Financing Activities: | |||||||||||
| Shares issued to Capri Acquisition Topco Limited | |||||||||||
| Retirement of treasury shares | ( | ( | |||||||||
Shares issued as contingent stock consideration associated with the DRG acquisition | — | ||||||||||
Shares issued as contingent stock consideration associated with the CPA Global acquisition | — | ||||||||||
| Dividends accrued on our 5.25% Series A Mandatory Convertible Preferred Shares | — | ||||||||||
| Total Non-Cash Financing Activities | $ | ( | $ | ||||||||
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
12
CLARIVATE PLC
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions, except option prices, ratios or as noted)
Note 1: Background and Nature of Operations
Clarivate Plc (“Clarivate,” “us,” “we,” “our,” or the “Company”), is a public limited company organized under the laws of Jersey, Channel Islands, pursuant to the definitive agreement entered into on May 13, 2019 to effect a merger between Camelot Holdings (Jersey) Limited ("Jersey") and Churchill Capital Corp, a Delaware corporation, ("Churchill") (the “2019 Transaction”). The Company is a provider of proprietary and comprehensive content, analytics, professional services and workflow solutions that enable users across government and academic institutions, life science companies and research and development (“R&D”) intensive corporations to discover, protect and commercialize their innovations. Clarivate has two reportable segments: Science and Intellectual Property ("IP"). See Note 18 - Segment Information, for additional information on the Company's reportable segments.
Risks and Uncertainties
In March 2020, the World Health Organization characterized COVID-19 as a pandemic. The rapid spread of COVID-19 and issues relating to the resurgence of COVID-19 and/or new strains of COVID-19 along with continuously evolving responses to combat it have had an increasingly negative impact on the global economy. This has had, and may continue to have, an adverse impact to our operational and financial performance as well as the businesses of our customers and partners, including their spending priorities. It is difficult to predict the full extent of the potential effects and impact on our operations, business, and financial performance, however, we continue to conduct business with substantial modifications and precautionary measures to our daily operations. Modifications include less employee travel as well as a virtual shift related to work location, and sales and marketing events. Given the uncertainty around the severity and duration of the COVID-19 pandemic, the Company cannot reasonably estimate the full impact on our business, financial condition and results of operations at this time, which may be material.
Note 2: Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements of the Company have been prepared on substantially the same basis as our annual consolidated financial statements and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021. Results from interim periods should not be considered indicative of results for the full year. In the opinion of management, these Condensed Consolidated Financial Statements reflect all adjustments necessary for a fair statement of financial position, results of operations, and cash flows for the periods presented, and such adjustments are of a normal, recurring nature.
The Condensed Consolidated Financial Statements of the Company include the accounts of all of its subsidiaries. Subsidiaries are entities over which the Company has control, where control is defined as the power to govern financial and operating policies. Generally, the Company has a shareholding of more than 50% of the voting rights in its subsidiaries. The effect of potential voting rights that are currently exercisable is considered when assessing whether control exists. Subsidiaries are fully consolidated from the date control is transferred to the Company, and are de-consolidated from the date control ceases. Intercompany accounts and transactions have been eliminated in consolidation.
The Employee Benefit Trust ("EBT") associated with the CPA Global Equity Plan was consolidated on October 1, 2020. The EBT held Clarivate shares that were recorded as treasury shares as they were legally issued but not outstanding. The EBT also holds cash that is classified as restricted cash on the Condensed Consolidated Balance Sheet.
13
CLARIVATE PLC
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions, except option prices, ratios or as noted)
Note 3: Summary of Significant Accounting Policies
Our significant accounting policies are those that we believe are important to the portrayal of our financial condition and results of operations, as well as those that involve significant judgments or estimates about matters that are inherently uncertain. There have been no material changes to the significant accounting policies discussed in Item 8. – Financial Statements and Supplementary Data – Notes to the Consolidated Financial Statements – Note 3 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which was filed with the SEC on March 10, 2022.
Newly Adopted Accounting Standards
In June 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity because of complexity associated with GAAP for certain financial instruments with characteristics of liabilities and equity. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. This guidance is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods. The Company adopted ASU 2020-06 effective January 1, 2022 prospectively, and the adoption did not have a material impact on our Condensed Consolidated Financial Statements.
In April 2021, the FASB issued ASU 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, which provides guidance regarding the accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. This guidance is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company adopted ASU 2021-04 effective January 1, 2022, and the adoption did not have a material impact on our Condensed Consolidated Financial Statements.
In July 2021, the FASB issued ASU 2021-05, Leases (Topic 842) Lessors – Certain Leases with Variable Lease Payments, to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities as well as disclosing key information about leasing transactions. This guidance is effective for all entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years for public business entities. The Company adopted the ASU 2021-05 at January 1, 2022, and the adoption did not have a material impact on our Condensed Consolidated Financial Statements.
Recently Issued Accounting Standards
In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815) – Portfolio Layer Method, amendments in this ASU allow multiple hedged layers to be designated for a single closed portfolio of financial assets or one or more beneficial interests secured by a portfolio of financial instruments. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact that the standard will have on our Condensed Consolidated Financial Statements and it is expected that the adoption will not have a material impact.
There were no other new accounting standards or updates issued or effective as of June 30, 2022, that have, or are expected to have, a material impact on our Condensed Consolidated Financial Statements.
Note 4: Business Combinations
Acquisition of ProQuest
On December 1, 2021, we acquired 100 % of ProQuest, a leading global software, data and analytics provider to academic, research and national institutions, and its subsidiaries from Cambridge Information Group (“CIG”), Atairos and certain other equity holders (collectively, the “Seller Group”). The aggregate consideration in connection with the closing of the ProQuest acquisition was $5,002.3 , net of $52.5 cash acquired. The aggregate consideration was composed of (i) $1,094.9 from the issuance of 46.9 million ordinary shares to the Seller Group and (ii) approximately $3,959.9 in cash, including approximately $917.5 to fund the repayment of ProQuest debt.
14
CLARIVATE PLC
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions, except option prices, ratios or as noted)
Issuance of | $ | |||||||
Cash consideration(2) | ||||||||
| Total purchase price | ||||||||
Cash acquired(3) | ( | |||||||
| Total purchase price, net of cash acquired | $ | |||||||
(1) Based on the Company’s closing share price of $ | ||||||||
(2) Total cash consideration of $ | ||||||||
(3) Cash acquired includes $ | ||||||||
The excess of the purchase price over the net tangible and intangible assets is recorded to Goodwill and primarily reflects the assembled workforce and expected synergies. The majority of goodwill is deductible for tax purposes. During the three and six months ended June 30, 2022, total transaction costs incurred in connection with the acquisition of ProQuest were $3.6 and $9.3 , respectively. Total transaction costs during the three and six months ended June 30, 2021 were $10.0 and $10.1 , respectively. The ProQuest acquisition is reported as part of the Science Segment, see Note 18 - Segment Information for further details.
15
CLARIVATE PLC
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions, except option prices, ratios or as noted)
| Original Purchase Price Allocation | Measurement Period Adjustments | Updated Purchase Price Allocation | |||||||||||||||
| Accounts receivable | $ | $ | $ | ||||||||||||||
| Prepaid expenses | |||||||||||||||||
| Other current assets | — | ||||||||||||||||
| Property and equipment, net | |||||||||||||||||
Other intangible assets(1) | ( | ||||||||||||||||
| Other non-current assets | — | ||||||||||||||||
| Deferred income taxes | — | ||||||||||||||||
| Operating lease right-of-use assets | — | ||||||||||||||||
| Total assets | $ | $ | $ | ||||||||||||||
| Accounts payable | — | ||||||||||||||||
| Accrued expenses and other current liabilities | ( | ||||||||||||||||
| Current portion of long-term debt | — | ||||||||||||||||
| Current portion of deferred revenue | — | ||||||||||||||||
| Current portion of operating lease liabilities | — | ||||||||||||||||
| Long-term debt | — | ||||||||||||||||
| Deferred income taxes | |||||||||||||||||
| Non-current portion of deferred revenue | — | ||||||||||||||||
| Other non-current liabilities | |||||||||||||||||
| Operating lease liabilities | — | ||||||||||||||||
| Total liabilities | ( | ||||||||||||||||
| Fair value of acquired identifiable assets and liabilities | $ | $ | $ | ||||||||||||||
| Purchase price, net of cash | $ | $ | $ | ||||||||||||||
| Less: Fair value of acquired identifiable assets and liabilities | |||||||||||||||||
| Goodwill | $ | $ | $ | ||||||||||||||
(1) Of the $ | |||||||||||||||||
The identifiable intangible assets acquired are amortized on a straight-line basis over their estimated useful lives. The following table summarizes the estimated fair value of ProQuest's identifiable intangible assets acquired and their remaining amortization period (in years):
| Fair Value as of December 1, 2021 | Remaining Range of Years | ||||||||||
| Customer relationships | $ | ||||||||||
| Technology & databases | |||||||||||
| Trade names | |||||||||||
| Total identifiable intangible assets | $ | ||||||||||
16
CLARIVATE PLC
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions, except option prices, ratios or as noted)
| Three Months Ended June 30, | |||||
| 2021 | |||||
| Pro forma revenues, net | $ | ||||
| Pro forma net loss attributable to the Company's shareholders | ( | ||||
| Six Months Ended June 30, | |||||
| 2021 | |||||
| Pro forma revenues, net | $ | ||||
| Pro forma net loss attributable to the Company's shareholders | ( | ||||
The unaudited pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of results of operations that would have been achieved had the acquisition taken place on the date indicated, or the future consolidated results of operations of the Company. The pro forma financial information presented above has been derived from the historical consolidated financial statements of the Company and from the historical accounting records of ProQuest.
The unaudited pro forma results include certain pro forma adjustments to net loss that were directly attributable to the acquisition, assuming the acquisition had occurred on January 1, 2020, including the following: (i) additional amortization expense that would have been recognized relating to the acquired intangible assets, (ii) adjustments to interest expense to reflect the removal of ProQuest debt and the additional Company borrowings in conjunction with the acquisition, and (iii) acquisition-related transaction costs incurred by the Company during the three and six months ended June 30, 2021 described above.
Note 5: Leases
The Company has multiple agreements to sublease operating lease right of use assets and recognized $0.7 1.5
On December 1, 2021, Clarivate closed its acquisition of ProQuest. As part of the acquisition, the Company assumed a finance lease. Refer to Note 6 - Property and Equipment, Net, Note 11 - Debt, and Note 20 - Related Party Transactions for further information.
In connection with the Company's digital workplace transformation initiative and other integration activities to enable colleagues to work remotely, the Company has ceased the use of select leased sites. See Note 21 - Restructuring and Impairment for further information.
Note 6: Property and Equipment, Net
17
CLARIVATE PLC
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions, except option prices, ratios or as noted)
| June 30, | December 31, | ||||||||||
| 2022 | 2021 | ||||||||||
| Computer hardware | $ | $ | |||||||||
| Leasehold improvements | |||||||||||
| Furniture, fixtures and equipment | |||||||||||
| Capital office leases - finance lease asset | |||||||||||
| Other | |||||||||||
| Total property and equipment, gross | |||||||||||
| Accumulated depreciation | ( | ( | |||||||||
| Total property and equipment, net | $ | $ | |||||||||
Depreciation amounted to $9.8 and $3.3 for the three months ended June 30, 2022 and 2021, respectively, and $20.4 and $6.6 for the six months ended June 30, 2022 and 2021, respectively. There were no 4.2 and $5.2 for the three and six months ended June 30, 2021.
Note 7: Other Intangible Assets, net and Goodwill
Other Intangible Assets, net
The following tables summarize the gross carrying amounts and accumulated amortization of the Company’s identifiable intangible assets by major class:
| June 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||
| Gross | Accumulated Amortization | Net | Gross | Accumulated Amortization | Net | ||||||||||||||||||||||||||||||
| Finite-lived intangible assets | |||||||||||||||||||||||||||||||||||
| Customer relationships | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Databases and content | ( | ( | |||||||||||||||||||||||||||||||||
| Computer software | ( | ( | |||||||||||||||||||||||||||||||||
| Trade names | ( | ( | |||||||||||||||||||||||||||||||||
| Backlog | ( | ( | |||||||||||||||||||||||||||||||||
| Finite-lived intangible assets | ( | ( | |||||||||||||||||||||||||||||||||
| Indefinite-lived intangible assets | |||||||||||||||||||||||||||||||||||
| Trade names | — | — | |||||||||||||||||||||||||||||||||
| Total intangible assets | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
Amortization amounted to $165.8 and $127.0 for the three months ended June 30, 2022 and 2021, respectively, and $331.6 and $255.3 for the six months ended June 30, 2022 and 2021, respectively.
18
CLARIVATE PLC
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions, except option prices, ratios or as noted)
| Science Segment | Intellectual Property Segment | Consolidated Total | |||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | ||||||||||||||
Measurement Period Adjustments(1) | |||||||||||||||||
Impact of foreign currency fluctuations(2) | ( | ( | ( | ||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | ||||||||||||||
(1) Includes $ | |||||||||||||||||
(2) The impact of foreign currency fluctuations was primarily driven by changes in the GBP/USD translation rate as of June 30, 2022 compared to December 31, 2021. Approximately half of the Company's Goodwill and Other intangible assets are denominated in GBP. | |||||||||||||||||
Note 8: Derivative Instruments
The Company had interest rate swap arrangements with counterparties to reduce its exposure to variability in cash flows relating to interest payments on $350.0 of its outstanding Term Loan arrangements which matured on March 31, 2021. In March 2021, the Company replaced the interest rate swaps that matured during March 2021 and entered into new interest rate swap arrangements relating to interest payments on $350.0 of its Term Loan arrangements which were effective March 31, 2021 and have a maturity date of March 31, 2024. The Company applies hedge accounting by designating the interest rate swaps as a hedge on applicable future quarterly interest payments.
In 2019, the Company also entered into two interest rate swap arrangements relating to interest payments on a total of $100.0 of its Term Loan arrangements, effective March 31, 2021 and April 30, 2021, respectively. Both of these derivatives have notional amounts that amortize downward, and a maturity date of September 2023. The Company applies hedge accounting by designating the interest rate swaps as a hedge on applicable future quarterly interest payments.
For additional information on our outstanding Term Loan and related hedging, see Note 11 - Debt and Item 3. Qualitative and Quantitative Disclosures about Market Risk.
Changes in fair value are recorded in accumulated other comprehensive income (loss) ("AOCI") and the amounts reclassified out of AOCI are recorded to Interest expense and amortization of debt discount, net. The fair value of the interest rate swaps is recorded in other current assets or accrued expenses and other current liabilities and other non-current assets or liabilities in the Condensed Consolidated Balance Sheets, according to the duration of related cash flows. The fair value of the interest rate swaps was an asset of $17.9 and $2.0 as of June 30, 2022 and December 31, 2021, respectively.
The Company periodically enters into foreign currency contracts to help manage the Company’s exposure to foreign exchange rate risks. These contracts generally do not exceed 180 days in duration. The Company recognized (loss) gains from the mark to market adjustment of $(5.7 ) and $0.8 for the three months ended June 30, 2022 and 2021, respectively, and $(12.4 ) and $1.8 for the six months ended June 30, 2022 and 2021, respectively, in Other operating (income) expense, net on the Condensed Consolidated Statements of Operations. The principal amount of outstanding foreign currency contracts was $194.9 and $216.7 as of June 30, 2022 and December 31, 2021, respectively.
The Company accounts for these forward contracts at fair value and recognizes the associated realized and unrealized gains and losses in Other operating (income) expense, net in the Condensed Consolidated Statements of Operations, as the contracts are not designated as accounting hedges under the applicable sections of ASC 815, Derivatives and Hedging. The total fair value of the forward contracts represented an asset balance of $0.1 and $2.2 and a liability balance of $4.3 and $0.7 as of June 30, 2022 and December 31, 2021, respectively, which was classified within Other current assets and Accrued expenses and other current liabilities, respectively, on the Condensed Consolidated Balance Sheets. See Note 9 - Fair Value Measurements for additional information related to the fair value of derivative instruments.
Note 9: Fair Value Measurements
19
CLARIVATE PLC
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions, except option prices, ratios or as noted)
The following table provides a summary of the Company’s assets and liabilities that were recognized at fair value on a recurring basis as at June 30, 2022 and December 31, 2021:
| June 30, 2022 | |||||||||||||||||
| Level 2 | Level 3 | Total Fair Value | |||||||||||||||
| Assets | |||||||||||||||||
| Forward currency contracts asset | $ | $ | — | $ | |||||||||||||
| Interest rate swap asset | — | ||||||||||||||||
| $ | $ | — | $ | ||||||||||||||
| Liabilities | |||||||||||||||||
| Warrant liability | — | ||||||||||||||||
| CPA Global Equity Plan liability - current | — | ||||||||||||||||
| Forward currency contracts liability | — | ||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
| December 31, 2021 | |||||||||||||||||
| Level 2 | Level 3 | Total Fair Value | |||||||||||||||
| Assets | |||||||||||||||||
| Forward currency contracts asset | $ | $ | — | $ | |||||||||||||
| Interest rate swap asset | |||||||||||||||||
| $ | $ | — | $ | ||||||||||||||
| Liabilities | |||||||||||||||||
| Warrant liability | — | ||||||||||||||||
| CPA Global Equity Plan liability - current | — | ||||||||||||||||
| Forward currency contracts liability | — | ||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
Private Placement Warrants - The following table summarizes the changes in the Private Placement Warrants liability for the three and six months ended June 30, 2022 and 2021:
20
CLARIVATE PLC
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions, except option prices, ratios or as noted)
| Balance at December 31, 2021 | $ | ||||
| Mark to market gain on financial instruments | ( | ||||
| Exercise of Private Placement Warrants | |||||
| Balance at March 31, 2022 | $ | ||||
| Mark to market gain on financial instruments | ( | ||||
| Exercise of Private Warrants | |||||
| Balance at June 30, 2022 | $ | ||||
| Balance at December 31, 2020 | $ | ||||
| Mark to market gain on financial instruments | ( | ||||
| Exercise of Private Placement Warrants | ( | ||||
| Balance at March 31, 2021 | $ | ||||
| Mark to market loss on financial instruments | |||||
| Exercise of Private Warrants | — | ||||
| Balance at June 30, 2021 | $ | ||||
There were no transfers of assets or liabilities between levels during the three and six months ended June 30, 2022 and 2021.
Non-Financial Assets Valued on a Non-Recurring Basis
Right of Use Asset — The Company recorded a non-cash impairment charge to reduce the carrying value of operating lease right of use asset by $6.2 and $28.6 for the three months ended June 30, 2022 and 2021, respectively, and $6.2 and $69.6 for the six months ended June 30, 2022 and 2021, respectively. Additionally, the Company incurred $0.2 and $0 in lease termination fees for the three months ended June 30, 2022 and 2021, respectively, and $0.4 and $3.1 during the six months ended June 30, 2022 and 2021, respectively. Fair value assumptions including sublease probabilities and the present value factor were used in the impairment calculation.
Note 10: Accrued Expenses and Other Current Liabilities
21
CLARIVATE PLC
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions, except option prices, ratios or as noted)
| June 30, | December 31, | ||||||||||
| 2022 | 2021 | ||||||||||
CPA Global Equity Plan liability(1) | $ | $ | |||||||||
Employee related accruals(2) | |||||||||||
Accrued professional fees(3) | |||||||||||
Accrued legal liability(4) | |||||||||||
Tax related accruals(5) | |||||||||||
Accrued royalty costs(6) | |||||||||||
Other accrued expenses and other current liabilities(7) | |||||||||||
| Total accrued expenses and other current liabilities | $ | $ | |||||||||
(1) See Note 9 - Fair Value Measurements and Note 14 - Share-based Compensation for further information. | |||||||||||
(2) Employee related accruals include accrued payroll, bonus and employee commissions. | |||||||||||
(3) Professional and outside service-related fees include accrued legal fees, audit fees, outside services, technology, and contractor fees. | |||||||||||
(4) Of the balance as of June 30, 2022 and December 31, 2021, management estimated the Company's potential liability for the larger legal claims is $ | |||||||||||
(5) Tax related accruals include value-added taxes payable and other current taxes payable. | |||||||||||
(6) Represents accrued royalty costs associated with licensee agreements. | |||||||||||
(7) Includes current liabilities due to customers, interest payable, and miscellaneous other current liabilities. As of June 30, 2022 and December 31, 2021, we recognized $ | |||||||||||
Note 11: Debt
The following table is a summary of the Company’s debt:
| June 30, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||
| Type | Maturity | Effective Interest Rate | Carrying Value | Effective Interest Rate | Carrying Value | |||||||||||||||||||||||||||
| Senior Notes | 2029 | % | $ | % | $ | |||||||||||||||||||||||||||
| Senior Secured Notes | 2028 | % | % | |||||||||||||||||||||||||||||
| Revolving Credit Facility | 2027 | % | % | |||||||||||||||||||||||||||||
| Term Loan Facility | 2026 | % | % | |||||||||||||||||||||||||||||
| Senior Secured Notes | 2026 | % | % | |||||||||||||||||||||||||||||
Finance lease(1) | 2023 | % | % | |||||||||||||||||||||||||||||
| Total debt outstanding | ||||||||||||||||||||||||||||||||
| Debt issuance costs | ( | ( | ||||||||||||||||||||||||||||||
| Term Loan Facility (2026), Senior Notes (2029), Senior Secured Notes (2028), discounts | ( | ( | ||||||||||||||||||||||||||||||
| Short-term debt, including current portion of Long-term debt | ( | ( | ||||||||||||||||||||||||||||||
| Long-term debt, net of current portion and debt issuance costs | $ | $ | ||||||||||||||||||||||||||||||
(1) See Note 5 - Leases for additional information. | ||||||||||||||||||||||||||||||||
22
CLARIVATE PLC
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions, except option prices, ratios or as noted)
Senior Notes (2029) and Senior Secured Notes (2028)
The Company has $921.2 aggregate principal amount of its Senior Secured Notes due in 2028 and $921.4 aggregate principal amount of its Senior Notes due in 2029. The Senior Secured Notes and Senior Notes bear interest at a rate of 3.875 % and 4.875 % per annum, respectively, and the interest is payable semi-annually to holders of record on June 30 and December 30 of each year, commencing on December 30, 2021. Both of these Notes were issued by Clarivate Science Holdings Corporation (the "Issuer"), an indirect wholly-owned subsidiary of Clarivate.
The Senior Secured Notes due 2028 are secured on a first-lien pari passu basis with borrowings under the existing credit facilities and senior secured notes due 2026. Both of these Notes are guaranteed on a joint and several basis by each of Clarivate’s indirect subsidiaries that is an obligor or guarantor under Clarivate’s existing credit facilities and senior secured notes due 2026. The Senior Notes due 2029 are the Issuer’s and such guarantors’ unsecured obligations.
The Credit Facilities
The Company's Credit Facilities consist of a $750.0 Revolving Credit Facility with a $80.0 letter of credit sublimit, due in 2027, and a $2,860.0 Term Loan Facility, due in 2026.
Revolving Credit Facility
The Revolving Credit Facility provides for revolving loans, same-day borrowings and letters of credit pursuant to commitments in an aggregate principal amount of $750.0 with a letter of credit sublimit of $80.0 . Proceeds of loans made under the Revolving Credit Facility may be borrowed, repaid and reborrowed prior to the maturity of the Revolving Credit Facility. Our ability to draw under the Revolving Credit Facility or issue letters of credit thereunder will be conditioned upon, among other things, delivery of required notices, accuracy of the representations and warranties contained in the Credit Agreement and the absence of any default or event of default under the Credit Agreement.
On March 31, 2022, the Company’s direct and indirect subsidiaries that are borrowers or guarantors under the Credit Agreement dated as of October 31, 2019, (the "Credit Agreement") entered into an amendment thereto, pursuant to which the total revolving credit commitments thereunder were further increased by $400.0 to $750.0 in the aggregate and the maturity date for revolving credit commitments was extended to March 31, 2027, subject to a “springing” maturity date that is 90 days prior to the maturity date of (i) the term loans outstanding under the Credit Agreement as of the date of the amendment or (ii) the 4.50 % senior secured notes due in 2026 and issued by Camelot Finance S.A. (but only to the extent such term loans or senior secured notes have not, prior thereto, been refinanced or extended to have a maturity date of no earlier than 90 days after March 31, 2027).
The Revolving Credit Facility carries an interest rate at Term SOFR, plus a 0.1 % SOFR adjustment, plus 3.25 % per annum (or 2.75 % per annum, based on first lien leverage ratios) or Prime plus a margin of 2.25 % per annum, as applicable depending on the borrowing. The Revolving Credit Facility interest rate margins will decrease upon the achievement of certain first lien net leverage ratios (as the term is used in the Credit Agreement).
In November 2021, the Company borrowed $175.0 on the existing Revolving Credit Facility and used the net proceeds from such borrowings for general corporate purposes. The Revolving Credit Facility is subject to a commitment fee rate of 0.5 % per annum (or 0.375 % per annum, based on first lien leverage ratios) times the unutilized amount of total revolving commitments.
As of June 30, 2022, letters of credit totaling $6.3 were collateralized by the Revolving Credit Facility. Notwithstanding the Revolving Credit Facility, the Company had an unsecured corporate guarantee outstanding for $10.5 and cash collateralized letters of credit totaling $2.6 as of June 30, 2022, all of which were not collateralized by the Revolving Credit Facility.
Term Loan Facility (2026)
The Company has a Term Loan Facility of $2,860.0 due in 2026, which was fully drawn at closing. The principal amount of the Term Loan Facility is repaid by the Company on the last Business Day of each March, June, September and December, in an amount equal to 0.25 % of the aggregate outstanding amount. As of June 30, 2022, we had $2,804.5 outstanding on our Term Loan Facility.
Senior Secured Notes (2026)
23
CLARIVATE PLC
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions, except option prices, ratios or as noted)
The Company has $700.0 in aggregate principal amount of Senior Secured Notes due in 2026 bearing interest at 4.50 % per annum, payable semi-annually to holders of record in May and November. The first interest payment was paid in May 2020. The Secured Notes due 2026 were issued by Camelot Finance S.A., an indirect wholly-owned subsidiary of Clarivate, and are secured on a first-lien pari passu basis with borrowings under the Credit Facilities and Senior Secured Notes due 2028. These Notes are guaranteed on a joint and several basis by certain Clarivate subsidiaries and will be general senior secured obligations of the Issuer and will be secured on a first-priority basis by the collateral now owned or hereafter acquired by the Issuer and each of the Guarantors that secures the Issuer’s and such Guarantor’s obligations under the New Senior Credit Facility (subject to permitted liens and other exceptions).
The carrying value of the Company’s variable interest rate debt, excluding unamortized debt issuance costs, approximates fair value due to the short-term nature of the interest rate benchmark rates. The fair value of the fixed rate debt is estimated based on market observable data for debt with similar prepayment features. The fair value of the Company’s debt was $5,015.8 and $5,595.5 at June 30, 2022 and December 31, 2021, respectively. The debt is considered a Level 2 liability under the fair value hierarchy.
Note 12: Revenue
Disaggregated Revenues
We disaggregate our revenues by segment (see Note 18 - Segment Information) and by transaction type based on revenue recognition pattern as follows:
•Subscription-based revenues are recurring revenues that are earned under annual, evergreen or multi-year contracts pursuant to which we license the right to use our products to our customers or provide maintenance services over a contractual term. Revenues from the sale of subscription data, maintenance services, and analytics solutions are recognized ratably over the contractual period as revenues are earned.
•Re-occurring 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. These contracts include either evergreen clauses, in which at least six month advance notice is required prior to cancellation, or the contract is for multiple years. Deliverables are usually received by the customer instantly or in a short period of time, at which time the revenues are recognized. The most significant component of our re-occurring revenues is our 'renewal' business within CPA Global.
•Transactional and other revenues. Transactional and other 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 and other revenues may involve sales to the same customer on multiple occasions but with different products or services comprising the order. Other revenues relate to professional services including implementation for software and software as a service ("SaaS") subscriptions. These contracts vary in length from several months to years for multi-year projects. Revenue is recognized over time utilizing a reasonable measure of progress depicting the satisfaction of the related performance obligation. Other revenues also includes one-time perpetual archive license revenues.
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CLARIVATE PLC
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions, except option prices, ratios or as noted)
| Three Months Ended June 30, | |||||||||||
| 2022 | 2021(1) | ||||||||||
| Subscription revenues | $ | $ | |||||||||
| Re-occurring revenues | |||||||||||
| Transactional and other revenues | |||||||||||
| Total revenues, gross | |||||||||||
Deferred revenues adjustment (2) | ( | ( | |||||||||
| Total revenues, net | $ | $ | |||||||||
(1) Certain prior period amounts have been reclassified to conform to current period presentation. | |||||||||||
(2) Reflects the deferred revenues adjustment made as a result of purchase accounting prior to the adoption of 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 ASC 606 Revenue from Contracts with Customers, 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 2021. | |||||||||||
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021(1) | ||||||||||
| Subscription revenues | $ | $ | |||||||||
| Re-occurring revenues | |||||||||||
| Transactional and other revenues | |||||||||||
| Total revenues, gross | |||||||||||
Deferred revenues adjustment(2) | ( | ( | |||||||||
| Total revenues, net | $ | $ | |||||||||
(1) Certain prior period amounts have been reclassified to conform to current period presentation. | |||||||||||
(2) Reflects the deferred revenues adjustment made as a result of purchase accounting prior to the adoption of 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 ASC 606 Revenue from Contracts with Customers, 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 2021. | |||||||||||
Contract Balances
| Accounts receivable, net | Current portion of deferred revenues | Non-current portion of deferred revenues | |||||||||||||||
| Opening (January 1, 2022) | $ | $ | $ | ||||||||||||||
| Closing (June 30, 2022) | |||||||||||||||||
| Decrease / (increase) | $ | $ | $ | ||||||||||||||
| Opening (January 1, 2021) | $ | $ | $ | ||||||||||||||
| Closing (June 30, 2021) | |||||||||||||||||
| Decrease / (increase) | $ | $ | $ | ( | |||||||||||||
The amount of revenue recognized in the period that was included in the opening deferred revenues balances was $628.5 and $377.9 for the six months ended June 30, 2022 and 2021, respectively. This revenue consists primarily of subscription revenues.
Transaction Price Allocated to the Remaining Performance Obligation
As of June 30, 2022, approximately $126.8 of revenue is expected to be recognized in the future from remaining performance obligations, excluding contracts with a duration of one year or less. The Company expects to recognize revenue
25
CLARIVATE PLC
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions, except option prices, ratios or as noted)
Note 13: Shareholders’ Equity
As of June 30, 2022, there were unlimited shares of ordinary stock authorized, 673.8 million shares issued and 673.3 million shares outstanding, with no par value. The Company held 0.5 million and 0.5 million shares as treasury shares as of June 30, 2022 and December 31, 2021, respectively. The Company’s ordinary shareholders are entitled to one vote per share.
DRG Acquisition Shares
In connection with the DRG acquisition, 2.9 million ordinary shares of the Company were issued to Piramal Enterprises Limited ("PEL") in March 2021.
MCPS Offering
In June 2021, concurrently with the June 2021 Ordinary Share Offering (see Note 1 - Background and Nature of Operations, in our Annual Report on Form 10-K), we completed a public offering of 14.4 million of our 5.25 % Series A Mandatory Convertible Preferred Shares ("MCPS") (which included 1.9 million of our MCPS that the underwriters purchased pursuant to their option to purchase additional shares). Dividends on our mandatory convertible preferred shares are payable, as and if declared by our Board of Directors, at an annual rate of 5.25 % of the liquidation preference of $100.00 per share. We may pay declared dividends on March 1, June 1, September 1 and December 1 of each year, commencing on September 1, 2021 and ending on, and including, June 1, 2024. Each of our convertible preferred shares has a liquidation preference of $100.00 .
As of June 30, 2022, we recognized $6.2 of accrued preferred share dividends within Accrued expenses and other current liabilities. While the dividends on the MCPS are cumulative, they will not be paid until declared by the Company’s Board of Directors. If the dividends are not declared, they will continue to accumulate until paid, due to a backstop contained in the agreement (even if never declared).
Treasury Shares
CPA Global Acquisition Shares - During the six months ended June 30, 2022, 41.7 thousand shares held in the Employee Benefit Trust ("EBT"), established for the CPA Global Equity Plan, were sold at an average net price per share of $15.01 to fund the payment to the respective employees. Given the original share value of $30.99 as of the date of the acquisition, an associated loss was recognized within the Condensed Consolidated Statement of Changes in Equity in the amount of $0.7 .
During January 2021, the Company issued 1.5 million ordinary shares to Redtop Holdings Limited pursuant to a hold-back clause within the purchase agreement for a total of $43.9 , which was satisfied. See Note 19 - Commitments and Contingencies for additional details.
Share Repurchase Program and Share Retirements - In August 2021, the Company's Board of Directors authorized a share repurchase program allowing the Company to purchase up to $250.0 of its outstanding ordinary shares, subject to market conditions. In February 2022, the Company's Board of Directors approved the purchase of up to $1,000.0 of the Company's ordinary shares through open-market purchases, to be executed through December 31, 2023. The February 2022 repurchase program replaces the repurchase program previously announced in August 2021. During the six months ended June 30, 2022, the Company repurchased 10.7 million ordinary shares with a total carrying value of $175.0 which were subsequently retired and restored as authorized but unissued ordinary shares. Upon formal retirement and in accordance with ASC Topic 505, Equity, the Company reduced its ordinary shares account by the carrying amount of the treasury shares. Additionally, given the differences of the original repurchase share value and the value at the time of formal retirements, an associated loss was recognized within the Consolidated Statement of Changes in Equity in the amount of $7.7 . As of June 30, 2022, the Company had approximately $825.0 of availability remaining under this program. A summary of the ordinary shares repurchased and retired during the six months ended June 30, 2022 is as follows:
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CLARIVATE PLC
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions, except option prices, ratios or as noted)
| Six Months Ended June 30, | |||||
| (in millions) | 2022 | ||||
| Total number of shares repurchased | |||||
| Average price paid per share | $ | ||||
Total | $ | ||||
| Total shares retired | |||||
| Average price paid per share | $ | ||||
Total | $ | ||||
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CLARIVATE PLC
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions, except option prices, ratios or as noted)
Note 14: Share-based Compensation
The Company grants share-based awards under the Clarivate Plc 2019 Incentive Award Plan ("the "Plan"). As of June 30, 2022, approximately 36.3 million shares of the Company’s ordinary shares were available for share-based awards. The Plan provides for the issuance of stock options, restricted stock units ("RSUs") and performance share units ("PSUs"). Share-based compensation expense is recorded to the “Cost of revenues’ and “Selling, general and administrative” line items on the accompanying Condensed Consolidated Statements of Operations. Total share-based compensation expense for the three and six months ended June 30, 2022, and 2021 comprised of the following:
| Three Months Ended June 30, 2022 | |||||||||||||||||||||||||||||
| Stock Options | RSUs | PSUs | CPA Global Equity Plan | Total | |||||||||||||||||||||||||
| Cost of revenues | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
| Selling, general and administrative costs | |||||||||||||||||||||||||||||
| Total share-based compensation expense | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Six Months Ended June 30, 2022 | |||||||||||||||||||||||||||||
| Stock Options | RSUs | PSUs | CPA Global Equity Plan | Total | |||||||||||||||||||||||||
| Cost of revenues | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
| Selling, general and administrative costs | |||||||||||||||||||||||||||||
| Total share-based compensation expense | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Three Months Ended June 30, 2021 | |||||||||||||||||||||||||||||
| Stock Options | RSUs | PSUs | CPA Global Equity Plan | Total | |||||||||||||||||||||||||
| Cost of revenues | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Selling, general and administrative costs | |||||||||||||||||||||||||||||
| Total share-based compensation expense | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Six months ended June 30, 2021 | |||||||||||||||||||||||||||||
| Stock Options | RSUs | PSUs | CPA Global Equity Plan | Total | |||||||||||||||||||||||||
| Cost of revenues | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Selling, general and administrative costs | |||||||||||||||||||||||||||||
| Total share-based compensation expense | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
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CLARIVATE PLC
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions, except option prices, ratios or as noted)
| Six Months Ended June 30, 2022 | |||||||||||||||||
| Stock Options | RSUs | PSUs | |||||||||||||||
| Balance at December 31, 2021 | |||||||||||||||||
| Granted | |||||||||||||||||
| Exercised/Vested | ( | ( | |||||||||||||||
| Forfeited/Unexercised | ( | ( | ( | ||||||||||||||
| Balance at June 30, 2022 | |||||||||||||||||
| Total remaining unearned compensation costs | |||||||||||||||||
| Weighted average remaining service period | |||||||||||||||||
| Six months ended June 30, 2021 | |||||||||||||||||
| Stock Options | RSUs | PSUs | |||||||||||||||
| Balance at December 31, 2020 | |||||||||||||||||
| Granted | |||||||||||||||||
| Vested | ( | ( | |||||||||||||||
| Forfeited | ( | ||||||||||||||||
| Balance at June 30, 2021 | |||||||||||||||||
| Total remaining unearned compensation costs | |||||||||||||||||
| Weighted average remaining service period | |||||||||||||||||
Note 15: Income Taxes
Note 16: Earnings Per Share
Basic net earnings per ordinary share from continuing operations (“EPS”) is calculated by taking Net income (loss) available to ordinary shareholders divided by the weighted average number of ordinary shares outstanding for the applicable period. Diluted net EPS is computed by taking net earnings adjusted for the effect of the fair value of Private Placement Warrants divided by the weighted average number of ordinary shares outstanding increased by the number of additional shares which have a dilutive effect.
Potential ordinary shares on a gross basis of 9.7 million and 10.1 million options, RSUs, and PSUs related to the 2019 Incentive Award Plan were excluded from diluted EPS for the six months ended June 30, 2022 and 2021, respectively, as their inclusion would have been anti-dilutive or their performance metric was not met. Potential ordinary shares on a gross basis of 10.1 million and 27.9 million options, RSUs, and PSUs related to the 2019 Incentive Award Plan were excluded from diluted EPS for the three months ended June 30, 2022 and 2021, respectively, as their inclusion would have been anti-
29
CLARIVATE PLC
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions, except option prices, ratios or as noted)
dilutive or their performance metric was not met. See Note 13 - Shareholders’ Equity and Note 14 - Share-based Compensation for additional information.
The potential dilutive effect of our MCPS outstanding during the period was calculated using the if-converted method assuming the conversion as of the earliest period reported or at the date of issuance, if later. The resulting weighted-average ordinary shares of 55.3 million related to our MCPS are not included in the dilutive weighted-average ordinary shares outstanding calculation for the three and six months ended June 30, 2022, as their effect would be anti-dilutive.
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CLARIVATE PLC
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions, except option prices, ratios or as noted)
| Three Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Basic EPS | |||||||||||
| Net income (loss) available to ordinary shareholders | $ | $ | ( | ||||||||
| Dividends on preferred shares | |||||||||||
| Net income (loss) attributable to ordinary shares | $ | $ | ( | ||||||||
| Basic weighted-average number of ordinary shares outstanding | |||||||||||
| Basic EPS | $ | $ | ( | ||||||||
| Diluted EPS | |||||||||||
| Net income (loss) attributable to ordinary shares | $ | $ | ( | ||||||||
| Change in fair value of private placement warrants | ( | ||||||||||
| Net income (loss) attributable to ordinary shares, diluted | $ | ( | $ | ( | |||||||
| Denominator: | |||||||||||
| Shares used in computing net income (loss) attributable to per share to ordinary shareholders, basic | |||||||||||
| Weighted-average effect of potentially dilutive shares to purchase ordinary shares | |||||||||||
| Diluted weighted-average number of ordinary shares outstanding | |||||||||||
| Diluted EPS | $ | ( | $ | ( | |||||||
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Basic EPS | |||||||||||
| Net income (loss) available to ordinary shareholders | $ | $ | ( | ||||||||
| Dividends on preferred shares | |||||||||||
| Net income (loss) attributable to ordinary shares | $ | $ | ( | ||||||||
| Basic weighted-average number of ordinary shares outstanding | |||||||||||
| Basic EPS | $ | $ | ( | ||||||||
| Diluted EPS | |||||||||||
| Net income (loss) attributable to ordinary shares | $ | $ | ( | ||||||||
| Change in fair value of private placement warrants | ( | ( | |||||||||
| Net income (loss) attributable to ordinary shares, diluted | $ | ( | $ | ( | |||||||
| Denominator: | |||||||||||
| Shares used in computing net income (loss) attributable to per share to ordinary shareholders, basic | |||||||||||
| Weighted-average effect of potentially dilutive shares to purchase ordinary shares | |||||||||||
| Diluted weighted-average number of ordinary shares outstanding | |||||||||||
| Diluted EPS | $ | ( | $ | ( | |||||||
Note 17: Other Operating (Income) Expense, Net
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CLARIVATE PLC
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions, except option prices, ratios or as noted)
Other operating (income) expense, net, consisted of the following for the three and six months ended June 30, 2022 and 2021:
| Three Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net foreign exchange (gain) loss | $ | ( | $ | ( | |||||||
| Miscellaneous (income) expense, net | ( | ( | |||||||||
| Other operating (income) expense, net | $ | ( | $ | ( | |||||||
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net foreign exchange (gain) loss | $ | ( | $ | ||||||||
| Miscellaneous expense (income), net | ( | ||||||||||
| Other operating (income) expense, net | $ | ( | $ | ||||||||
Note 18: Segment Information
The Chief Executive Officer is the Company’s Chief Operating Decision Maker (“CODM”). The CODM evaluates segment performance based primarily on revenue and segment Adjusted EBITDA, as described below. The CODM does not review assets by operating segment for the purposes of assessing performance or allocating resources.
Science: The Science segment consists of our Academia and Government Product Line, which includes ProQuest, and our Life Sciences Product Line. Both Product Lines provide curated, high-value, structured information and consulting services that is delivered and embedded into the workflows of our customers, which include research-intensive corporations, life science organizations and universities world-wide.
Intellectual Property: The Intellectual Property segment consists of our Patent, Trademark, Domain and IP Management Product Lines. These Product Lines help manage customer’s end-to-end portfolio of intellectual property from patents to trademarks to corporate website domains.
Each of the two operating segments represent the segments for which discrete financial information is available and upon which operating results are regularly evaluated by the CODM in order to assess performance and allocate resources. The CODM evaluates performance based primarily on revenue and segment Adjusted EBITDA. Adjusted EBITDA represents net (loss) income 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, share-based compensation, unrealized foreign currency gains/(losses), transformational and restructuring expenses, acquisition-related adjustments to deferred revenues prior to the adoption of FASB ASU No. 2021-08 in 2021, non-operating income or expense, the impact of certain non-cash mark-to-market adjustments on financial instruments, 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.
Revenues, net by segment
The following table summarizes revenue by reportable segment for the periods indicated:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Science Segment | $ | $ | $ | $ | |||||||||||||||||||
Intellectual Property Segment | |||||||||||||||||||||||
| Total Revenues, net | $ | $ | $ | $ | |||||||||||||||||||
32
CLARIVATE PLC
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions, except option prices, ratios or as noted)
Adjusted EBITDA by segment
The following table presents segment profitability and a reconciliation to net income for the periods indicated:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Science Segment Adjusted EBITDA | $ | $ | $ | $ | ||||||||||||||||||||||
| Intellectual Property Segment Adjusted EBITDA | ||||||||||||||||||||||||||
| Total Adjusted EBITDA | $ | $ | $ | $ | ||||||||||||||||||||||
| Provision for income taxes | ( | ( | ( | ( | ||||||||||||||||||||||
| Depreciation and amortization | ( | ( | ( | ( | ||||||||||||||||||||||
| Interest expense and amortization of debt discount, net | ( | ( | ( | ( | ||||||||||||||||||||||
Mark to market gain (loss) on financial instruments(1) | ( | |||||||||||||||||||||||||
Deferred revenues adjustment(2) | ( | ( | ( | ( | ||||||||||||||||||||||
Transaction related costs(3) | ( | ( | ( | |||||||||||||||||||||||
| Share-based compensation expense | ( | ( | ( | ( | ||||||||||||||||||||||
Restructuring and impairment(4) | ( | ( | ( | ( | ||||||||||||||||||||||
Other(5) | ( | |||||||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Dividends on preferred shares | ( | ( | ||||||||||||||||||||||||
| Net income (loss) attributable to ordinary shares | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
(1) Reflects mark-to-market adjustments on financial instruments under ASC 815, Derivatives and Hedging. 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. | ||||||||||||||||||||||||||
(2) Reflects the deferred revenues adjustment made as a result of purchase accounting prior to the adoption of 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 ASC 606, Revenue from Contracts with Customers, 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 2021. | ||||||||||||||||||||||||||
(3) 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. During the six months ended June 30, 2021, this also includes the mark-to-market adjustments on the contingent stock consideration associated with the CPA Global and DRG acquisitions. | ||||||||||||||||||||||||||
(4) Primarily reflects costs related to restructuring and impairment associated with One Clarivate, ProQuest and CPA Global Programs. Refer to Note 21 - Restructuring and Impairment for further information. | ||||||||||||||||||||||||||
(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. | ||||||||||||||||||||||||||
Note 19: Commitments and Contingencies
The Company does not have any recorded or unrecorded guarantees of the indebtedness of others.
Lawsuits and Legal Claims
The Company is engaged in various legal proceedings, claims, audits and investigations that have arisen in the ordinary course of business. These matters may include among others, antitrust/competition claims, intellectual property infringement claims, employment matters and commercial matters. The outcome of all of the matters against the Company is subject to future resolution, including the uncertainties of litigation.
From time to time, we are involved in litigation in the ordinary course of our business, including claims or contingencies that may arise related to matters occurring prior to our acquisition of businesses. At the present time, primarily because the
33
CLARIVATE PLC
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions, except option prices, ratios or as noted)
matters are generally in early stages, we can give no assurance as to the outcome of any pending litigation to which we are currently a party, and we are unable to determine the ultimate resolution of these matters or the effect they may have on us.
Our best estimate of the Company's potential liability for the larger legal claims is $60.4 , which includes estimated legal costs and accrued interest. The recorded probable loss is an estimate and the actual costs arising from our litigation could be materially lower or higher. We have and will continue to vigorously defend ourselves against these claims. We maintain appropriate levels of insurance, which we expect are likely to provide coverage for some of these liabilities or other losses that may arise from these litigation matters.
Between January and March 2022, three putative securities class action complaints were filed in the United States District Court for the Eastern District of New York against Clarivate and certain of its executives and directors alleging that there were weaknesses in the Company’s internal controls over financial reporting and financial reporting procedures that it failed to disclose in violation of federal securities law. The complaints, which were consolidated into a single proceeding on May 18, 2022, collectively seek damages on behalf of a putative class of shareholders who acquired Clarivate securities between November 10, 2020 and February 2, 2022, and/or acquired Clarivate preferred shares in connection with a June 9, 2021 offering. The complaints reference an error in the accounting treatment of an equity plan included in the Company’s 2020 business combination with CPA Global that was disclosed on December 27, 2021, and related restatements issued on February 3, 2022 of certain of the Company's previously issued financial statements. On June 7, 2022, a class action was filed in Pennsylvania state court in the Court of Common Pleas of Philadelphia asserting claims under the Securities Act of 1933, based on substantially similar allegations, with respect to alleged misstatements and omissions in the offering documents for two issuances of Clarivate ordinary shares on June 9, 2021 and September 9, 2021. Clarivate does not believe that the claims alleged in the complaints have merit and will vigorously defend against them. Given the early stage of the proceedings, we are unable to estimate the reasonably possible loss or range of loss, if any, arising from these matters.
Contingent Liabilities
In conjunction with the acquisition of DRG, the Company agreed to pay up to 2.9 million shares as contingent stock consideration, valued at $58.9 on the closing date of the acquisition. Amounts payable were contingent upon any indemnity losses or claims to indemnity losses occurring within that one-year period. During March 2021, the Company issued 2.9 million shares as per the purchase agreement for the acquisition of DRG for a total of $61.6 which was satisfied. The issuance of these shares represents a non-cash financing activity on the Condensed Consolidated Statement of Cash Flows.
In conjunction with the acquisition of CPA Global, the Company agreed to pay up to 1.5 million shares as contingent stock consideration, valued at $46.5 on the closing date of the acquisition. The amount was payable 110 days after the acquisition date and was contingent upon any indemnity losses or claims for indemnity losses as defined in the purchase agreement. During January 2021, the Company issued 1.5 million shares as per the purchase agreement for the acquisition of CPA Global related to a hold-back clause for a total of $43.9 which was satisfied. The issuance of these shares represents a non-cash financing activity on the statement of cash flows.
As of June 30, 2022 and December 31, 2021, there were no outstanding contingent liabilities.
Note 20: Related Party Transactions
The Company incurred expenses of $0.3 0.4 and $0.5 during the six months ended June 30, 2022 and 2021, respectively, associated with two vendors that are controlled affiliates of Baring. The outstanding liability as of June 30, 2022 and December 31, 2021 related to these vendors was $0.4 and $0.3 , respectively.
The Company recognized net revenues of $1.4 and $0.2 during the three months ended June 30, 2022 and 2021, respectively, and $2.0 and $0.8 during the six months ended June 30, 2022 and 2021, respectively, from a customer that is a controlled affiliate of Onex. The Company had outstanding receivables of $0.3 as of June 30, 2022.
34
CLARIVATE PLC
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions, except option prices, ratios or as noted)
During the three and six months ended June 30, 2022, two controlled affiliates of Leonard Green & Partners, L.P. were customers of ours. From these two customers, respectively, the Company recognized net revenues of $0.1 and $0.1 during both the three and six months ended June 30, 2022. These customers had no outstanding receivables as of June 30, 2022. During the three and six months ended June 30, 2021, three controlled affiliates of Leonard Green & Partners, L.P. were customers of ours. From these three customers, respectively, the Company recognized net revenues of $0.1 , $11.0 and $0.0 during the three months ended June 30, 2021 and $0.1 , $20.6 and $0.1 during the six months ended June 30, 2021. These customers had outstanding receivables of $0.0 , $71.0 and $0.1 , respectively, as of December 31, 2021.
The Company incurred expenses of $2.3 and $4.5 during the three and six months ended June 30, 2022, respectively, associated with a vendor that is a controlled affiliate of Leonard Green & Partners, L.P. The outstanding liability as of June 30, 2022 related to this vendor was $4.7 . The Company incurred expenses of $7.9 , $2.0 and $0.4 during the three months ended June 30, 2021, and $15.5 , $2.0 and $0.6 during the six months ended June 30, 2021, associated with three vendors, respectively, that were controlled affiliates of Leonard Green & Partners, L.P. There was no outstanding liability as of December 31, 2021 related to these vendors.
One of our independent directors has an immediate family member who is a member of management for one of our customers. The Company recognized net revenues of $1.1 and $0.3 for the three months ended June 30, 2022 and 2021, respectively, and $1.3 and $0.5 during the six months ended June 30, 2022 and 2021, respectively, from this customer and had $1.7 receivables outstanding as of June 30, 2022 and $0.1 outstanding as of December 31, 2021.
One of our independent directors is also a director on the board of one of Clarivate’s customers. The Company recognized net revenues of $0.2 and $0.3 during the three and six months ended June 30, 2022, respectively, from this customer and had $0.1 of receivables outstanding as of June 30, 2022.
On May 15, 2021, Clarivate entered into an agreement with Capri Acquisition Topco Limited (“Capri”) and Solaro ExchangeCo Limited (“NewCo”), and for certain limited purposes, LGP. Capri and NewCo are controlled by LGP and held Clarivate ordinary shares beneficially owned by LGP and certain other existing shareholders. Under the agreement, Capri contributed 177.2
On December 1, 2021, Clarivate closed its acquisition of ProQuest from CIG, Atairos and certain other equity holders (the "Seller Group"). The aggregate consideration included $1,094.9 from the issuance of 46.9 million ordinary shares to the Seller Group. As part of the acquisition, and as a result, CIG is a related party to Clarivate. Clarivate assumed a Finance lease in which CIG is the Lessor as part of the acquisition. For the three and six months ended June 30, 2022, interest expense of $0.3 and $0.6 , respectively, and amortization of the Finance lease right of use asset ("ROU") of $3.8 and $7.7 , respectively, is reflected in the Condensed Consolidated Statements of Operations. The Finance lease ROU asset of $31.0 is presented within Property, Plant, and Equipment (see Note 6 - Property and Equipment, Net) and the corresponding lease liability of $29.8 is treated as an item of indebtedness (see Note 11 - Debt) within the Condensed Consolidated Balance Sheet.
Note 21: Restructuring and Impairment
One Clarivate Program
During the second quarter 2021, the Company approved a restructuring plan to streamline operations within targeted areas of the Company. The program is expected to result in a reduction in operational costs, with the primary cost savings driver being from a reduction in workforce. Components of the pre-tax charges include $5.5 and $2.0 in severance costs incurred during the three months ended June 30, 2022 and 2021, respectively. Costs incurred during the six months ended June 30, 2022 and 2021 include $11.1 and $2.0 in severance costs, respectively. The Science and IP segments incurred $3.9 and $1.6 of the expense, respectively, during the three months ended June 30, 2022 and $7.1 and $4.1 , respectively, during the six
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CLARIVATE PLC
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions, except option prices, ratios or as noted)
months ended June 30, 2022. The Science and IP Segments incurred $0.7 and $1.3 of the expense, respectively, during the three and six months ended June 30, 2021.
ProQuest Acquisition Integration Program
During the fourth quarter 2021, the Company approved a restructuring plan to streamline operations within targeted areas of the Company. The program is expected to result in a reduction in operational costs, with the primary cost savings driver being from a reduction in workforce. Components of the pre-tax charges include $7.7 and $12.0 in severance costs and $6.3 and $8.1 in other costs incurred during the three and six months ended June 30, 2022, respectively. The Science and IP segments incurred $7.8 and $6.2 of the expense, respectively, during the three months ended June 30, 2022 and $12.6 and $7.5 , respectively, during the six months ended June 30, 2022.
Other Restructuring Programs
During 2020 and the fourth quarter 2019, we engaged a strategic consulting firm to assist us in optimizing our structure and cost base. As a result, we implemented several cost-saving and margin improvement programs designed to generate substantial incremental cash flows including the Operation Simplification and Optimization Program, the DRG Acquisition Integration Program and the CPA Global Acquisition Integration and Optimization Program. The costs associated with these programs were substantially complete as of June 30, 2022. Components of the pre-tax charges include $(1.1 ) and $24.2 in severance costs and $0.7 and $24.5 in other costs incurred during the three months ended June 30, 2022 and 2021, respectively. Costs incurred during the six months ended June 30, 2022 and 2021 include $(0.7 ) and $46.4 in severance costs, respectively, and $0.2 and $70.2 in other costs, respectively. The Science and IP segments incurred $(0.2 ) and $(0.2 ) of the expense, respectively, during the three months ended June 30, 2022 and $(0.3 ) and $(0.2 ) during the six months ended June 30, 2022. The Science and IP Segments incurred $13.9 and $25.7 of the expense, respectively, during the three months ended June 30, 2021 and $37.0 and $67.4 , respectively, during the six months ended June 30, 2021.
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CLARIVATE PLC
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions, except option prices, ratios or as noted)
| Restructuring Programs | Severance and Related Benefit Costs | Costs Associated with Exit and Disposal Costs(1) | Total | |||||||||||||||||
| Reserve Balance as of December 31, 2021 | $ | $ | $ | |||||||||||||||||
Expenses recorded(2) | ||||||||||||||||||||
| Payments made | ( | ( | ( | |||||||||||||||||
| Noncash items | ( | |||||||||||||||||||
| Reserve Balance as of March 31, 2022 | $ | $ | $ | |||||||||||||||||
Expenses recorded(2) | ||||||||||||||||||||
| Payments made | ( | ( | ( | |||||||||||||||||
| Noncash items | ( | ( | ( | |||||||||||||||||
| Reserve Balance as of June 30, 2022 | $ | $ | $ | |||||||||||||||||
| Reserve Balance as of December 31, 2020 | $ | $ | $ | |||||||||||||||||
Expenses recorded(2) | ||||||||||||||||||||
| Payments made | ( | ( | ( | |||||||||||||||||
| Noncash items | ( | ( | ( | |||||||||||||||||
| Reserve Balance as of March 31, 2021 | $ | $ | $ | |||||||||||||||||
Expenses recorded(2) | ||||||||||||||||||||
| Payments made | ( | ( | ( | |||||||||||||||||
| Asset Impairment Charge | — | ( | ( | |||||||||||||||||
| Reserve Balance as of June 30, 2021 | $ | $ | $ | |||||||||||||||||
(1) Relates primarily to lease exit costs and legal and advisory fees. Certain prior period amounts were revised for both the three months ended March 31, 2021 and June 30, 2021 to properly reflect certain cash payments previously omitted or classified as Noncash items. | ||||||||||||||||||||
(2) Expenses include the acceleration of phantom equity awards under the CPA Global Equity Plan that were held by employees whose employment was involuntarily terminated. These expenses will be paid in cash and are accounted for as a liability award. | ||||||||||||||||||||
The following table is a summary of charges incurred related to the Company's restructuring programs for the three and six months ended June 30, 2022 and 2021.
| Three Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Severance and related benefit costs | $ | $ | |||||||||
Costs associated with exit and disposal activities(1) | |||||||||||
Costs associated with lease exit costs including impairment(2) | |||||||||||
| Total restructuring and impairment | $ | $ | |||||||||
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Severance and related benefit costs | $ | $ | |||||||||
Costs associated with exit and disposal activities(1) | |||||||||||
Costs associated with lease exit costs including impairment(2) | |||||||||||
| Total restructuring and impairment | $ | $ | |||||||||
(1) Relates primarily to contract exit costs, legal and advisory fees. | |||||||||||
(2) Relates primarily to lease exit costs. | |||||||||||
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CLARIVATE PLC
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions, except option prices, ratios or as noted)
Lease Impairments
The Company evaluates long-lived assets for indicators of impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company considers a triggering event to have occurred upon exiting a facility if the expected undiscounted cash flows for the sublease period are less than the carrying value of the assets group. An impairment charge is recorded in the excess of each operating lease ROU asset's carrying amount over its estimated fair value. In connection with the Company's digital workplace transformation initiative to enable colleagues to work remotely, the Company ceased the use of select leased sites during the six months ended June 30, 2022 and 2021. As a result, the Company recorded a non-cash impairment charge to restructuring and impairment within the Condensed Consolidated Statement of Operations based on the estimate of future recoverable cash flows of $6.2 and $28.6 for the three months ended June 30, 2022 and 2021, respectively, and $6.2 and $69.6 for the six months ended June 30, 2022 and 2021, respectively. Additionally, the Company incurred $0.2 and $0.0 in lease termination fees during the three months ended June 30, 2022 and 2021, respectively, and $0.4 and $3.1 during the six months ended June 30, 2022 and 2021, respectively.
Employee Rights Upon Retirement
In Israel, the Company is required by law to make severance payments upon dismissal of an employee or upon termination of employment in certain other circumstances. The Company operates a number of post-employment defined contribution plans. A defined contribution plan is a program that benefits an employee after termination of employment, under which the Company regularly makes ongoing deposits into Israeli employees' pension plans to fund their severance liabilities. According to Section 14 of the Severance Pay Law, for employees employed by the Company under Section 14, the Company deposits are made in lieu of the Company's severance liability for 85 % of the employees' salaries, therefore no obligation is provided for in the financial statements for such portion of the employees' salaries. Severance pay liabilities for the Section 14 employees, is calculated for 15 % of salary and provided for in the financial statements based upon the latest monthly salary multiplied by the number of years of employment. The fund assets for such Section 14 employees are not included in the Company’s financial position. For employees that are not under Section 14, severance pay liabilities are provided for in the financial statements based upon the latest monthly salary multiplied by the number of years of employment. The fund assets for such non-Section 14 employees are included in the Company’s financial position. In accordance with its terms, the plans meet the definition of a defined contribution plan.
| June 30, 2022 | December 31, 2021 | |||||||||||||
| Long-term severance payable | $ | $ | ||||||||||||
Note 22: Subsequent Events
On July 11, 2022, the Company announced that Jonathan Gear had assumed the role of Chief Executive Officer-Elect effective as of July 11, 2022, and was joining the Board of Directors, which was increased from 13 to 14 members. Mr. Gear will become the Chief Executive Officer of the Company on September 1, 2022. Jerre Stead, who has served as Executive Chair and Chief Executive Officer of the Company since 2019, is retiring from his Chief Executive Officer role effective September 1, 2022 and will continue as the non-executive Chair of the Board of Directors of the Company.
In August 2022, the Company entered into interest rate swap arrangements with counterparties to reduce its exposure to variability in cash flows relating to interest payments on $780 of its outstanding Term loan arrangements in total. These swaps mature in October 2026. The Company is in the process of evaluating these arrangements and intends to apply hedge accounting treatment, similar to its currently existing interest rate swap agreements.
Management has evaluated the impact of events that have occurred subsequent to June 30, 2022. Based on this evaluation, other than disclosed within these Condensed Consolidated Financial Statements and related notes, the Company has determined no other events were required to be recognized or disclosed.
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CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except share and per share data, option prices, ratios or as noted)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our Annual Report on Form 10-K and the unaudited Condensed 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 to U.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 segment and Intellectual Property (“IP”) segment, which are also our reportable segments. Our Science segment consists of our Academic and Government Product Line (“AGPL”) and Life Sciences Product Lines, and our IP segment consists of our Patent, Trademark, Domain, and IP Management 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 preclinical research, competitive intelligence, regulatory information and clinical trials. Our Patent 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 Trademark Product Line allow businesses and legal professionals to access our comprehensive trademark database. Our Domain Product Line offerings include enterprise web domain portfolio management products and services. Finally, our IP Management Product Line provides technology solutions and legal support services across the IP lifecycle, including renewal and validation of IP rights on behalf of customers and the development and provision of IP management software, as well as other patent activities including patent searching, IP filing, prosecution support and trademark watching.
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 of ProQuest
On December 1, 2021, we acquired 100% of ProQuest, a leading global software, data and analytics provider to academic, research and national institutions, and its subsidiaries from Cambridge Information Group (“CIG”), Atairos and certain other equity holders (collectively, the “Seller Group”). The aggregate consideration in connection with the closing of the ProQuest acquisition was $4,994.3, net of $52.5 cash acquired. The aggregate consideration was composed of (i) $1,094.9 from the issuance of 46.9 million ordinary shares to the Seller Group and (ii) approximately $3,959.9 in cash.
Public Ordinary and Mandatory Convertible Preferred Share Offerings
In June 2021, we completed an underwritten public offering of 44.2 million of our ordinary shares at a share price of $26.00, of which 28.8 million ordinary shares were issued and sold by Clarivate and 15.4 million ordinary shares were sold by selling shareholders (which included 5.8 million ordinary shares that the underwriters purchased pursuant to their option to purchase additional shares).
Concurrently with the June 2021 Ordinary Share Offering, we completed an underwritten public offering of 14.4 million of our 5.25% Series A Mandatory Convertible Preferred Shares (which included 1.9 million of our MCPS that the underwriters purchased pursuant to their option to purchase additional shares).
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CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except share and per share data, option prices, ratios or as noted)
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. We include Revenue growth, Adjusted EBITDA, Adjusted EBITDA margin, Annualized Contract Value, Annual Revenue Renewal Rates, Free Cash Flow and Adjusted Free Cash Flow as key performance indicators 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.
Adjusted EBITDA, Adjusted EBITDA margin, Free Cash Flow and Adjusted Free Cash Flow are financial measures that are not prepared in accordance with U.S. generally accepted accounting principles (“non-GAAP”). Although we believe these measures are useful for investors for the same reasons, we recommend users of the financial statements note these measures are not a substitute for GAAP financial measures or disclosures.
Revenue growth
We review year-over-year revenue growth in our segments as a key measure of our success in addressing customer needs. We also review year-over-year revenue growth by transaction type to help us identify and address broad changes in product mix, and by geography to help us identify and address broad changes and revenue trends by region. We measure revenue growth in terms of organic, acquisitive, and foreign currency impacts. We define these components as follows:
•Organic: We define organic revenue growth as total revenue growth from continuing operations for all factors other than acquisitions and foreign currency movements. We drive this type of revenue growth through pricing, up-selling and cross-selling efforts, securing new customer business, and the sale of new or enhanced product offerings.
•Acquisitive: We define acquisitive revenue as the revenue generated from acquired products and services from the date of acquisition to the first anniversary date of that acquisition. This type of growth comes as a result of our strategy of the pursuit of acquisition opportunities.
•Foreign Currency: We define the foreign currency impact on revenue as the difference between current revenue at current exchange rates and current revenue at the corresponding prior period exchange rates. Due to the significance of revenue transacted in foreign currencies, we believe that it is important to measure the impact of foreign currency movements on revenue.
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 U.S. 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), share-based compensation, mandatory convertible preferred share dividend expense, unrealized foreign currency gains (losses), transformational and restructuring expenses, acquisition-related adjustments to deferred revenues prior to the adoption of FASB ASU No. 2021-08 in 2021, non-operating income or expense, the impact of certain non-cash, mark to market adjustments on financial instruments, 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 Revenues, net plus the impact of the deferred revenue purchase accounting adjustments relating to acquisitions prior to 2021.
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
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CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except share and per share data, option prices, ratios or as noted)
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 and re-occurring 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 and re-occurring revenues, which accounted for 75.6% and 79.9% of our total revenues for the three months ended June 30, 2022 and 2021 and 76.9% and 80.2% for the six months ended June 30, 2022 and 2021, respectively. We calculate and monitor ACV for each of our segments 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:
| June 30, | Change(1) | ||||||||||||||||||||||
| 2022 | 2021 | 2022 vs. 2021 | |||||||||||||||||||||
| Annualized Contract Value | $ | 1,625.9 | $ | 924.4 | $ | 701.5 | 75.9 | % | |||||||||||||||
(1) The change in ACV is primarily due to the acquisition of ProQuest in December 2021, supplemented by organic ACV growth of 3.8%. | |||||||||||||||||||||||
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.
“Annual revenue renewal rate” is the metric we use to determine renewal levels by existing customers across all of our Segments, and is a leading indicator of renewal trends, which impact the evolution of our ACV and results of operations. We calculate the annual 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 91.3% and 90.8% for the six months ended June 30, 2022 and 2021, respectively.
Free Cash Flow and Adjusted Free Cash Flow
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CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except share and per share data, option prices, ratios or as noted)
We use free cash flow and adjusted free cash flow in our operational and financial decision-making and believe free cash flow and adjusted 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 and adjusted free cash flow should not be construed as a measure of liquidity or discretionary cash available to us to fund our cash needs, including investing in the growth of our business and meeting our obligations.
We define free cash flow as net cash provided by operating activities less capital expenditures. Adjusted free cash flow is calculated as free cash flow, less cash paid for restructuring and lease-exit activities, payments related to the CPA Global equity plan, transaction related costs, interest on debt held in escrow, debt issuance costs, and other one-time payments that the Company does not consider indicative of its ongoing operating performance. For further discussion on free cash flow and adjusted free cash flow, including a reconciliation to cash flows provided by operating activities, refer to Liquidity and Capital Resources - Cash Flows below.
Key Components of Our Results of Operations
There have been no material changes to the key components of our results of operations discussed in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations to our Annual Report on Form 10-K for the year ended December 31, 2021.
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CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except share and per share data, option prices, ratios or as noted)
Results of Operations
Revenues, net
Total Revenue
Revenues, net of $686.6 for the three months ended June 30, 2022, increased by $240.9, or 54.0%, from $445.7 for the three months ended June 30, 2021. On a constant currency basis, Revenues, net increased by $266.8, or 59.9% for the three months ended June 30, 2022. Revenues, net of $1,348.8 for the six months ended June 30, 2022, increased by $474.7, or 54.3%, from $874.1 for the six months ended June 30, 2021. On a constant currency basis, Revenues, net increased by $513.7, or 58.8% for the six months ended June 30, 2022. Organic revenue growth was slightly impacted by our decision to cease commercial operations in Russia in March 2022.
The following tables present the amounts of our subscription, re-occurring and transactional and other 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) | ||||||||||||||||||||||||||||
| Three Months Ended June 30, | Total Variance (Dollars) | Total Variance (Percentage) | Acquisitions | FX Impact | Organic | ||||||||||||||||||||||||
| (in millions, except percentages) | 2022 | 2021(1) | |||||||||||||||||||||||||||
| Subscription revenues | $ | 407.4 | $ | 243.4 | $ | 164.0 | 67.4 | % | 68.9 | % | (5.4) | % | 3.8 | % | |||||||||||||||
| Re-occurring revenues | 112.0 | 113.7 | (1.7) | (1.5) | % | — | % | (8.2) | % | 6.7 | % | ||||||||||||||||||
| Transactional and other revenues | 168.0 | 90.0 | 78.0 | 86.7 | % | 85.6 | % | (3.9) | % | 5.0 | % | ||||||||||||||||||
Deferred revenues adjustment(2) | (0.8) | (1.4) | 0.6 | 42.9 | % | (42.9) | % | — | % | — | % | ||||||||||||||||||
| Revenues, net | $ | 686.6 | $ | 445.7 | $ | 240.9 | 54.0 | % | 55.1 | % | (5.8) | % | 4.8 | % | |||||||||||||||
(1) Certain prior period amounts have been reclassified to conform to current period presentation. | |||||||||||||||||||||||||||||
(2) Reflects the deferred revenues adjustment made as a result of purchase accounting prior to the adoption of 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 ASC 606 Revenue from Contracts with Customers, 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 2021. | |||||||||||||||||||||||||||||
On a constant currency basis, subscription revenues increased by $177.1, or 72.8%. Acquisitive subscription growth was primarily generated from the ProQuest Transaction. Organic subscription revenues increased primarily due to price increases and the benefit of net installations in prior year.
On a constant currency basis, re-occurring revenues increased by $7.6, or 6.7%. Organic re-occurring revenues increased primarily due to increases in patent renewal volumes and improvements in yield per case.
On a constant currency basis, transactional and other revenues increased by $81.5, or 90.6%. Acquisitive transactional growth was primarily generated from the ProQuest Transaction. Organic transactional and other revenues increased due to an increase in back file and custom data sales.
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CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except share and per share data, option prices, ratios or as noted)
Variance Increase/(Decrease) | Percentage of Factors Increase/(Decrease) | ||||||||||||||||||||||||||||
| Six Months Ended June 30, | Total Variance (Dollars) | Total Variance (Percentage) | Acquisitions | FX Impact | Organic | ||||||||||||||||||||||||
| (in millions, except percentages) | 2022 | 2021(1) | |||||||||||||||||||||||||||
| Subscription revenues | $ | 811.2 | $ | 482.4 | $ | 328.8 | 68.2 | % | 68.8 | % | (4.0) | % | 3.3 | % | |||||||||||||||
| Re-occurring revenues | 226.5 | 223.2 | 3.3 | 1.5 | % | — | % | (6.5) | % | 8.0 | % | ||||||||||||||||||
| Transactional and other revenues | 311.7 | 172.9 | 138.8 | 80.3 | % | 79.7 | % | (3.1) | % | 3.7 | % | ||||||||||||||||||
Deferred revenues adjustment(2) | (0.6) | (4.4) | 3.8 | 86.4 | % | (86.4) | % | — | % | — | % | ||||||||||||||||||
| Revenues, net | $ | 1,348.8 | $ | 874.1 | $ | 474.7 | 54.3 | % | 54.2 | % | (4.5) | % | 4.6 | % | |||||||||||||||
(1) Certain prior period amounts have been reclassified to conform to current period presentation. | |||||||||||||||||||||||||||||
(2) Reflects the deferred revenues adjustment made as a result of purchase accounting prior to the adoption of 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 ASC 606 Revenue from Contracts with Customers, 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 2021. | |||||||||||||||||||||||||||||
On a constant currency basis, subscription revenues increased by $347.9, or 72.1%. Acquisitive subscription growth was primarily generated from the ProQuest Transaction. Organic subscription revenues increased primarily due to price increases and the benefit of net installations in prior year.
On a constant currency basis, re-occurring revenues increased by $17.8, or 8.0%. Organic re-occurring revenues increased primarily due to increases in patent renewal volumes and improvements in yield per case.
On a constant currency basis, transactional and other revenues increased by $144.2, or 83.4%. Acquisitive transactional growth was primarily generated from the ProQuest Transaction. Organic transactional and other revenues increased due to an increase in custom data sales.
Revenue by Geography
The below tables present our revenues split by geographic region, separating the impacts of the deferred revenues adjustment:
Variance Increase/(Decrease) | Percentage of Factors Increase/(Decrease) | ||||||||||||||||||||||||||||
| Three Months Ended June 30, | Total Variance (Dollars) | Total Variance (Percentage) | Acquisitions | FX Impact | Organic | ||||||||||||||||||||||||
(in millions, except percentages) | 2022 | 2021 | |||||||||||||||||||||||||||
Americas | $ | 384.5 | $ | 221.4 | $ | 163.1 | 73.7 | % | 71.8 | % | (2.2) | % | 4.0 | % | |||||||||||||||
Europe/Middle East/Africa | 178.6 | 133.5 | 45.1 | 33.8 | % | 41.0 | % | (9.3) | % | 2.0 | % | ||||||||||||||||||
Asia Pacific | 124.3 | 92.2 | 32.1 | 34.8 | % | 33.6 | % | (9.4) | % | 10.6 | % | ||||||||||||||||||
Deferred revenues adjustment(1) | (0.8) | (1.4) | 0.6 | 42.9 | % | (42.9) | % | — | % | — | % | ||||||||||||||||||
Revenues, net | $ | 686.6 | $ | 445.7 | $ | 240.9 | 54.0 | % | 55.1 | % | (5.8) | % | 4.8 | % | |||||||||||||||
(1) Reflects the deferred revenues adjustment made as a result of purchase accounting prior to the adoption of 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 ASC 606 Revenue from Contracts with Customers, 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 2021. | |||||||||||||||||||||||||||||
Acquisitive growth for all regions was primarily related to the ProQuest Transaction. On a constant currency basis, Americas revenues increased by $167.9, or 75.8%, with organic growth due to improved subscription and re-occurring revenues. Re-occurring revenues increased primarily due to increases in patent renewal volumes and improvements in yield per case. On a constant currency basis, Europe/Middle East/Africa revenues increased by $57.5, or 43.1%, primarily due to acquisitive growth and improved re-occurring and transactional and other revenues. On a constant currency basis, Asia
44
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except share and per share data, option prices, ratios or as noted)
Pacific revenues increased by $40.8, or 44.3%, primarily due to acquisitive growth and balanced growth across the Science Group and IP Group among subscription, re-occurring and transactional and other revenues.
Variance Increase/(Decrease) | Percentage of Factors Increase/(Decrease) | ||||||||||||||||||||||||||||
| Six Months Ended June 30, | Total Variance (Dollars) | Total Variance (Percentage) | Acquisitions | FX Impact | Organic | ||||||||||||||||||||||||
(in millions, except percentages) | 2022 | 2021 | |||||||||||||||||||||||||||
Americas | $ | 744.8 | $ | 424.6 | $ | 320.2 | 75.4 | % | 70.7 | % | (1.8) | % | 6.5 | % | |||||||||||||||
Europe/Middle East/Africa | 356.1 | 265.6 | 90.5 | 34.1 | % | 40.8 | % | (7.0) | % | 0.3 | % | ||||||||||||||||||
Asia Pacific | 248.5 | 188.3 | 60.2 | 32.0 | % | 32.6 | % | (6.9) | % | 6.3 | % | ||||||||||||||||||
Deferred revenues adjustment(1) | (0.6) | (4.4) | 3.8 | 86.4 | % | (86.4) | % | — | % | — | % | ||||||||||||||||||
Revenues, net | $ | 1,348.8 | $ | 874.1 | $ | 474.7 | 54.3 | % | 54.2 | % | (4.5) | % | 4.6 | % | |||||||||||||||
(1) Reflects the deferred revenues adjustment made as a result of purchase accounting prior to the adoption of 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 ASC 606 Revenue from Contracts with Customers, 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 2021. | |||||||||||||||||||||||||||||
Acquisitive growth for all regions was primarily related to the ProQuest Transaction. On a constant currency basis, Americas revenues increased by $327.7, or 77.2%, with organic growth due to improved subscription, re-occurring and transactional and other revenues. Transactional and other revenues increased primarily due to improved custom data sales. On a constant currency basis, Europe/Middle East/Africa revenues increased by $109.1, or 41.1%, primarily due to acquisitive growth. On a constant currency basis, Asia Pacific revenues increased by $73.1, or 38.8%, primarily due to acquisitive growth and improved subscription and re-occurring revenues.
The following tables, and the discussions that follow, present our revenues by segment for the periods indicated.
Variance Increase/(Decrease) | Percentage of Factors Increase/(Decrease) | ||||||||||||||||||||||||||||
| Three Months Ended June 30, | Total Variance (Dollars) | Total Variance (Percentage) | Acquisitions | FX Impact | Organic | ||||||||||||||||||||||||
| (in millions, except percentages) | 2022 | 2021 | |||||||||||||||||||||||||||
| Science Segment | $ | 448.2 | $ | 202.3 | $ | 245.9 | 121.6 | % | 121.0 | % | (4.9) | % | 5.5 | % | |||||||||||||||
| IP Segment | $ | 239.2 | $ | 244.8 | $ | (5.6) | (2.3) | % | — | % | (6.5) | % | 4.2 | % | |||||||||||||||
Deferred revenues adjustment(1) | $ | (0.8) | $ | (1.4) | $ | 0.6 | 42.9 | % | (42.9) | % | — | % | — | % | |||||||||||||||
| Revenues, net | $ | 686.6 | $ | 445.7 | $ | 240.9 | 54.0 | % | 55.1 | % | (5.8) | % | 4.8 | % | |||||||||||||||
(1) Reflects the deferred revenues adjustment made as a result of purchase accounting prior to the adoption of 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 ASC 606 Revenue from Contracts with Customers, 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 2021. | |||||||||||||||||||||||||||||
Science Segment: On a constant currency basis, revenues increased by $255.9, or 126.5%. Acquisitive growth was generated from the ProQuest Transaction. Organic subscription revenue growth reflects the benefit of price increases and net installations in prior year. Transactional and other revenues growth is primarily due to stronger back file and custom data sales.
Intellectual Property Segment: On a constant currency basis, revenues increased by $10.3, or 4.2%. Organic revenues, on a constant currency basis, grew due to growth in re-occurring revenues primarily due to volume and yield per case growth and transactional and other revenues primarily due to improved trademark search volumes.
45
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except share and per share data, option prices, ratios or as noted)
Variance Increase/(Decrease) | Percentage of Factors Increase/(Decrease) | ||||||||||||||||||||||||||||
| Six Months Ended June 30, | Total Variance (Dollars) | Total Variance (Percentage) | Acquisitions | FX Impact | Organic | ||||||||||||||||||||||||
| (in millions, except percentages) | 2022 | 2021 | |||||||||||||||||||||||||||
| Science Segment | $ | 868.6 | $ | 393.6 | $ | 475.0 | 120.7 | % | 119.4 | % | (3.7) | % | 5.0 | % | |||||||||||||||
| IP Segment | 480.8 | 484.9 | (4.1) | (0.8) | % | — | % | (5.1) | % | 4.2 | % | ||||||||||||||||||
Deferred revenues adjustment(1) | (0.6) | (4.4) | 3.8 | 86.4 | % | (86.4) | % | — | % | — | % | ||||||||||||||||||
| Revenues, net | $ | 1,348.8 | $ | 874.1 | $ | 474.7 | 54.3 | % | 54.2 | % | (4.5) | % | 4.6 | % | |||||||||||||||
(1) Reflects the deferred revenues adjustment made as a result of purchase accounting prior to the adoption of 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 ASC 606 Revenue from Contracts with Customers, 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 2021. | |||||||||||||||||||||||||||||
Science Segment: On a constant currency basis, revenues increased by $489.4, or 124.3%, primarily due to acquisitive growth and organic subscription and transactional and other revenues growth. Acquisitive growth was primarily generated from the ProQuest Transaction. Organic revenues, on a constant currency basis, increased primarily due to subscription revenues due to price increases, new business and the benefit of net installations in prior year and transactional and other revenues increased due to custom data sales.
Intellectual Property Segment: On a constant currency basis, revenues increased by $20.5, or 4.2%. Organic revenues, on a constant currency basis, increased primarily due to growth in re-occurring revenues from patent renewal volumes and yield and subscription revenues due to price increases, new business and the benefit of net installations in prior year.
Operating Expenses
The following table presents certain of our operating expense line item amounts and their associated percentage of revenue:
| Three Months Ended June 30, | Change 2022 vs. 2021 | Six Months Ended June 30, | Change 2022 vs. 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| (in millions, except percentages) | 2022 | 2021 | $ | % | 2022 | 2021 | $ | % | |||||||||||||||||||||||||||||||||||||||
| Operating Expenses: | |||||||||||||||||||||||||||||||||||||||||||||||
| Cost of revenues | $ | 244.1 | $ | 149.7 | $ | 94.4 | 63.1 | % | $ | 493.3 | $ | 297.6 | $ | 195.7 | 65.8 | % | |||||||||||||||||||||||||||||||
| Selling, general and administrative costs | 186.1 | 179.7 | 6.4 | 3.6 | % | 379.8 | 314.0 | 65.8 | 21.0 | % | |||||||||||||||||||||||||||||||||||||
Total cost of revenues and selling, general and administrative costs | $ | 430.2 | $ | 329.4 | $ | 100.8 | 30.6 | % | $ | 873.1 | $ | 611.6 | $ | 261.5 | 42.8 | % | |||||||||||||||||||||||||||||||
Depreciation and amortization expense | $ | 175.6 | $ | 130.3 | $ | 45.3 | 34.8 | % | $ | 352.0 | $ | 261.9 | $ | 90.1 | 34.4 | % | |||||||||||||||||||||||||||||||
| As a percentage of revenue: | |||||||||||||||||||||||||||||||||||||||||||||||
| Total cost of revenues and selling, general and administrative costs | 62.7 | % | 73.9 | % | 64.7 | % | 70.0 | % | |||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization expense | 25.6 | % | 29.2 | % | 26.1 | % | 30.0 | % | |||||||||||||||||||||||||||||||||||||||
Cost of Revenues
On a constant currency basis, cost of revenues increased by $104.9, or 70.1%, for the three months ended June 30, 2022. The increase for the three months ended June 30, 2022 was primarily due to an increase from the acquisition of ProQuest, which was acquired in December 2021 and has no prior year comparative amount. The increase was partially offset by a reduction in share-based compensation expenses related to phantom equity awards under the CPA Global Equity Plan. See Note 14 - Share-based Compensation for further information. Cost of revenues as a percentage of revenues, net increased by 2.0% to 35.6% for the three months ended June 30, 2022 compared to 33.6% for the three months ended June 30, 2021.
On a constant currency basis, cost of revenues increased by $206.3, or 69.3%, for the six months ended June 30, 2022. The increase for the six months ended June 30, 2022 was primarily due to an increase from the acquisition of ProQuest. The increase was partially offset by a reduction in people related costs primarily driven by the cost-saving and margin
46
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except share and per share data, option prices, ratios or as noted)
improvement programs designed to generate substantial incremental cash flow. See Note 21 - Restructuring and Impairment for further information. Cost of revenues as a percentage of revenues, net increased by 2.5% to 36.6% for the six months ended June 30, 2022 compared to 34.0% for the six months ended June 30, 2021.
Selling, General and Administrative
On a constant currency basis, selling, general and administrative expense increased by $14.9, or 8.3%, for the three months ended June 30, 2022, primarily due to additional expense from the acquisition of ProQuest. The increase was partially offset by a decrease in share-based compensation expense related to phantom equity awards under the CPA Global Equity Plan. Selling, general and administrative costs as a percentage of revenues, net decreased by 13.2% to 27.1% for the three months ended June 30, 2022 compared to 40.3% for the three months ended June 30, 2021, largely driven by the cost-saving and margin improvement programs designed to generate substantial incremental cash flow including the One Clarivate and ProQuest Acquisition Integration Programs.
On a constant currency basis, selling, general and administrative expense increased by $74.2, or 23.6%, for the six months ended June 30, 2022, primarily due to additional expense from the acquisition of ProQuest. The increase was also attributed to mark to market gains on contingent shares associated with the CPA Global and DRG acquisitions that settled in the first quarter of 2021. These increases were partially offset by a decrease in share-based compensation expense related to phantom equity awards under the CPA Global Equity Plan. Selling, general and administrative costs as a percentage of revenues, net decreased by 7.8% to 28.2% for the six months ended June 30, 2022 compared to 35.9% for the six months ended June 30, 2021, largely driven by the cost-saving and margin improvement programs designed to generate substantial incremental cash flow including the One Clarivate and ProQuest Acquisition Integration Programs.
Depreciation and amortization
The increase for the three and six months ended June 30, 2022 was driven by the additional depreciation and amortization on assets acquired through the ProQuest Transaction. This increase was partially offset by run-off of previously purchased capital assets.
Restructuring and Impairment
| Three Months Ended June 30, | Change 2022 vs. 2021 | Six Months Ended June 30, | Change 2022 vs. 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | $ | % | 2022 | 2021 | $ | % | ||||||||||||||||||||||||||||||||||||||||
| Restructuring and impairment | $ | 19.2 | $ | 50.7 | $ | (31.5) | (62.1) | % | $ | 30.9 | $ | 118.6 | $ | (87.7) | (73.9) | % | |||||||||||||||||||||||||||||||
The decrease for the three and six months ended June 30, 2022 was primarily driven by wind down of expenses associated with the CPA Global Acquisition Integration and Optimization Program, DRG Acquisition Integration Program, and Operation Simplification and Optimization Program, which were substantially complete as of June 30, 2022. The decrease was partially offset by the cost-saving and margin improvement programs designed to generate substantial incremental cash flow including the One Clarivate and ProQuest Acquisition Integration Programs. See Note 21 - Restructuring and Impairment for further information.
The following table summarizes the total costs incurred to date and expected costs to be incurred in a future period for each program.
47
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except share and per share data, option prices, ratios or as noted)
| Total Costs Incurred to Date | Costs Expected to be Incurred in Future Periods | ||||||||||
| One Clarivate Program | $ | 31.2 | $ | 5.0 | |||||||
| ProQuest Acquisition Integration Program | 22.1 | 30.0 | |||||||||
| Other Restructuring Programs: | |||||||||||
| CPA Global Acquisition Integration and Optimization Program | 127.7 | — | |||||||||
| DRG Acquisition Integration Program | 6.7 | — | |||||||||
| Operation Simplification and Optimization Program | 44.5 | — | |||||||||
| Total Other Restructuring Programs | $ | 178.9 | $ | — | |||||||
Other Operating (Income) Expense, Net
| Three Months Ended June 30, | Change 2022 vs. 2021 | Six Months Ended June 30, | Change 2022 vs. 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | $ | % | 2022 | 2021 | $ | % | ||||||||||||||||||||||||||||||||||||||||
| Other operating (income) expense, net | $ | (24.6) | $ | (0.9) | $ | 23.7 | 2,633.3 | % | $ | (38.3) | $ | 15.3 | $53.6 | 350.3 | % | ||||||||||||||||||||||||||||||||
The fluctuations for the three and six months ended June 30, 2022, as compared to the three and six months ended June 30, 2021, respectively, were primarily driven by 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, with the largest impacts derived from transactions denominated in GBP.
Mark to Market (gain) loss on Financial Instruments
| Three Months Ended June 30, | Change 2022 vs. 2021 | Six Months Ended June 30, | Change 2022 vs. 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | $ | % | 2022 | 2021 | $ | % | ||||||||||||||||||||||||||||||||||||||||
| Mark to market (gain) loss on financial instruments | $ | (49.0) | $ | 21.0 | $ | 70.0 | 333.3 | % | $(149.4) | $(30.2) | $119.2 | 394.7 | % | ||||||||||||||||||||||||||||||||||
The increase was driven by the change in the Company’s share price and its impact as an input to the Black-Scholes option valuation model for the three and six months ended June 30, 2022, as compared to the three and six months ended June 30, 2021, respectively.
Interest Expense and amortization of debt discount, Net
| Three Months Ended June 30, | Change 2022 vs. 2021 | Six Months Ended June 30, | Change 2022 vs. 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | $ | % | 2022 | 2021 | $ | % | ||||||||||||||||||||||||||||||||||||||||
| Interest expense and amortization of debt discount, net | $ | 62.3 | $ | 38.5 | $ | 23.8 | 61.8 | % | $ | 121.8 | $ | 75.9 | $45.9 | 60.5 | % | ||||||||||||||||||||||||||||||||
The increases were primarily attributed to the private placement offerings and subsequent exchange offers of our New Senior Secured Notes due 2028 and Senior Notes due 2029, which took place in the second and third quarter of 2021, respectively.
Provision (benefit) for Income Taxes
Provision for income taxes of $10.5 on pre-tax book income of $72.9 for the three months ended June 30, 2022, increased by $2.3 from a provision of $8.2 on a pre-tax book loss of $123.3 for the three months ended June 30, 2021. Provision for income taxes of $26.8 on pre-tax book income of $158.7 for the six months ended June 30, 2022, increased by $18.3 from a provision of $8.5 on a pre-tax book loss of $179.0 for the six months ended June 30, 2021. The effective tax rate was 16.9%
48
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except share and per share data, option prices, ratios or as noted)
for the six months ended June 30, 2022, as compared to 4.7% for the six months ended June 30, 2021. The overall increase in tax expense is due to the pre-tax book income, the higher mark to market gain on the private warrants, and reflects the change in the mix of taxing jurisdictions in which pre-tax profits and losses were recognized. The current quarter effective tax rate may not be indicative of our effective tax rates for future periods.
Dividends on Preferred Shares
| Three Months Ended June 30, | Change 2022 vs. 2021 | Six Months Ended June 30, | Change 2022 vs. 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | $ | % | 2022 | 2021 | $ | % | ||||||||||||||||||||||||||||||||||||||||
| Dividends on preferred shares | $ | 18.7 | $ | — | $ | 18.7 | 100.0 | % | $ | 37.4 | $ | — | $37.4 | 100.0 | % | ||||||||||||||||||||||||||||||||
The increase is due to the dividends on our mandatory convertible preferred shares that are calculated at an annual rate of 5.25% of the liquidation preference of $100.00 per share. While the dividends on the MCPS are cumulative, they will not be paid until declared by the Company’s Board of Directors. If no dividends are declared and paid, they will continue to accumulate as the agreement contains a backstop to it being paid even if never declared by the Board. The dividends on our preferred shares were first reported in the third quarter of 2021, and as a result, there are no prior period comparative amounts.
49
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except share and per share data, option prices, ratios or as noted)
Certain Non-GAAP Measures
We include non-GAAP measures in this quarterly report, including Adjusted EBITDA, Adjusted EBITDA margin, Free Cash Flow and Adjusted 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 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), share-based compensation, mandatory convertible preferred share dividend expense, unrealized foreign currency gains (losses), transformational and restructuring expenses, acquisition-related adjustments to deferred revenues, non-operating income or expense, the impact of certain non-cash, mark-to-market adjustments on financial instruments, 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 Revenues, net plus the impact of the deferred revenue purchase accounting adjustments relating to acquisitions prior to 2021.
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.
The following table presents our calculation of Adjusted EBITDA for the three and six months ended June 30, 2022 and 2021, and reconciles these measures to our net income (loss) for the same periods:
50
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except share and per share data, option prices, ratios or as noted)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in millions, except percentages) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Net income (loss) attributable to ordinary shares | $ | 43.7 | $ | (131.5) | $ | 94.5 | $ | (187.5) | |||||||||||||||
| Dividends on preferred shares | 18.7 | — | 37.4 | — | |||||||||||||||||||
| Net income (loss) | 62.4 | (131.5) | 131.9 | (187.5) | |||||||||||||||||||
| Provision for income taxes | 10.5 | 8.2 | 26.8 | 8.5 | |||||||||||||||||||
| Depreciation and amortization | 175.6 | 130.3 | 352.0 | 261.9 | |||||||||||||||||||
| Interest expense and amortization of debt discount, net | 62.3 | 38.5 | 121.8 | 75.9 | |||||||||||||||||||
Deferred revenues adjustment(1) | 0.8 | 1.4 | 0.6 | 4.4 | |||||||||||||||||||
Transaction related costs(2) | 5.1 | 13.9 | 11.8 | (9.0) | |||||||||||||||||||
| Share-based compensation expense | 22.1 | 58.2 | 59.1 | 97.2 | |||||||||||||||||||
Restructuring and impairment(3) | 19.2 | 50.7 | 30.9 | 118.6 | |||||||||||||||||||
Mark to market (gain) loss on financial instruments(4) | (49.0) | 21.0 | (149.4) | (30.2) | |||||||||||||||||||
Other(5) | (34.6) | (1.7) | (48.8) | 14.0 | |||||||||||||||||||
| Adjusted EBITDA | $ | 274.4 | $ | 189.0 | $ | 536.7 | $ | 353.8 | |||||||||||||||
| Adjusted EBITDA margin | 39.9% | 42.3% | 39.8% | 40.3% | |||||||||||||||||||
(1) Reflects the deferred revenues adjustment made as a result of purchase accounting prior to the adoption of 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 ASC 606, Revenue from Contracts with Customers, 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 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. During the six months ended June 30, 2021, this also includes the mark-to-market adjustments on the contingent stock consideration associated with the CPA Global and DRG acquisitions. | |||||||||||||||||||||||
(3) Primarily reflects costs related to restructuring and impairment associated with One Clarivate, ProQuest and CPA Global Programs. Refer to Note 21 - Restructuring and Impairment in Item 1, Financial Statements and Supplementary Data, for further information. | |||||||||||||||||||||||
(4) Reflects mark-to-market adjustments on financial instruments under ASC 815, Derivatives and Hedging. 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) Primarily includes 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 and Adjusted Free Cash Flow
We use free cash flow and adjusted free cash flow in our operational and financial decision-making and believe free cash flow and adjusted free cash flow are 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 and adjusted free cash flow should not be construed as a measure of liquidity or discretionary cash available to us to fund our cash needs, including investing in the growth of our business and meeting our obligations.
We define free cash flow as net cash provided by operating activities less capital expenditures. Adjusted free cash flow is calculated as free cash flow, less cash paid for restructuring and lease-exit activities, payments related to the CPA Global equity plan, transaction related costs, interest on debt held in escrow, debt issuance costs, and other one-time payments that the Company does not consider indicative of its ongoing operating performance. For further discussion on free cash flow and adjusted 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
51
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except share and per share data, option prices, ratios or as noted)
on our Condensed Consolidated Balance Sheets and amounts available under our revolving 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 and re-occurring transaction 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, the unsecured notes due 2029, the secured notes due 2028, the 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. 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 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.
The below table summarizes our total liquidity for the periods presented:
| Total Liquidity | June 30, | December 31, | |||||||||
| (in millions) | 2022 | 2021 | |||||||||
| Cash and cash equivalents | $ | 359.7 | $ | 430.9 | |||||||
| Additional availability under revolving credit facility | 568.7 | 168.9 | |||||||||
| $ | 928.4 | $ | 599.8 | ||||||||
Unrestricted cash and cash equivalents was $359.7 and $430.9 as of June 30, 2022 and December 31, 2021, respectively. Restricted cash decreased from $156.7 as of December 31, 2021 to $13.2 as of June 30, 2022 primarily due to the payments in the first quarter of 2022 to respective employees via payroll from restricted cash related to the CPA Global Equity Plan. In the fourth quarter of 2021, the Company received cash from the sale of treasury shares from the Employee Benefit Trust established for the CPA Global Equity Plan in December 2021. As of June 30, 2022, we had $5,551.9 of total debt outstanding, consisting of $2,804.5 in borrowings under our term loan facility, $921.4 in outstanding principal of our senior notes due 2029, $921.2 in outstanding principal of our senior secured notes due 2028, $700.0 in outstanding principal of senior secured notes due 2026, $175.0 of borrowings under our revolving credit facility, and $29.8 related to a finance lease.
As of both June 30, 2022 and December 31, 2021, we had $175.0 outstanding on the revolving credit facility. Additional availability under the revolving credit facility as of June 30, 2022 and December 31, 2021 was $568.7 and $168.9, respectively, which is net of a letter of credit utilization of $6.3 and $6.1.
On June 24, 2021, we issued $1,000.0 in aggregate principal amount of Senior Secured Notes due June 30, 2028 (the "Old Secured Notes") and $1,000.0 in aggregate principal amount of Senior Notes due June 30, 2029 (the "Old Unsecured Notes" and, together with the Old Secured Notes, the "Old Notes") bearing interest at a rate of 3.875% and 4.875% per annum, respectively. In August 2021, we exchanged all of the outstanding, validly tendered and not withdrawn Old Secured Notes for the newly issued 3.875% Senior Secured Notes due 2028, and exchanged all of the outstanding, validly tendered and not withdrawn Old Unsecured Notes for the Issuer’s newly-issued 4.875% Senior Notes due 2029. The exchange was treated as a debt modification in accordance with ASC 470. We used the net proceeds to finance a portion of the purchase price for the ProQuest acquisition, which was completed on December 1, 2021.
Refer to Note 11 - Debt in Item 1, Financial Statements and Supplementary Data, for additional information and a summary of amounts due under all of the outstanding borrowings as of June 30, 2022 and December 31, 2021.
52
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except share and per share data, option prices, ratios or as noted)
In August 2021, the Company's Board of Directors authorized a share repurchase program allowing the Company to purchase up to $250.0 of its outstanding ordinary shares, subject to market conditions. In February 2022, the Company's Board of Directors approved the purchase of up to $1,000.0 of the Company's ordinary shares through open-market purchases, to be executed through December 31, 2023. The February 2022 repurchase program replaces the repurchase program previously announced in August 2021. During the six months ended June 30, 2022, the Company repurchased 10.7 million ordinary shares with a total carrying value of $175.0 which were subsequently retired and restored as authorized but unissued ordinary shares. Upon formal retirement and in accordance with ASC Topic 505, Equity, the Company reduced its ordinary shares account by the carrying amount of the treasury shares. Additionally, given the differences of the original repurchase share value and the value at the time of formal retirements, an associated loss was recognized within the Consolidated Statement of Changes in Equity in the amount of $7.7. As of June 30, 2022, the Company had approximately $825.0 of availability remaining under this program. See Note 13 - Shareholders’ Equity for additional information related to the Share Repurchase Program.
Cash Flows
The following table discloses our condensed consolidated cash flows provided by (used in) operating, investing and financing activities for the periods presented:
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net cash provided by operating activities | $ | 164.6 | $ | 261.7 | |||||||
| Net cash used in investing activities | (103.4) | (61.6) | |||||||||
| Net cash (used in) provided by financing activities | (239.4) | 4,096.4 | |||||||||
Effect of exchange rates | (36.5) | 5.0 | |||||||||
| Net (decrease) increase in cash and cash equivalents, and restricted cash | $ | (214.7) | $ | 4,301.5 | |||||||
| Net (decrease) increase in cash and cash equivalents | $ | (71.2) | $ | 2,301.9 | |||||||
| Net (decrease) increase in restricted cash | (143.5) | 1,999.6 | |||||||||
| Net (decrease) increase in cash and cash equivalents, and restricted cash | $ | (214.7) | $ | 4,301.5 | |||||||
| Cash and cash equivalents, beginning of period | $ | 430.9 | $ | 257.7 | |||||||
| Restricted cash, beginning of period | 156.7 | 14.7 | |||||||||
Cash and cash equivalents, and restricted cash beginning of the year | $ | 587.6 | $ | 272.4 | |||||||
| Cash and cash equivalents, end of period | $ | 359.7 | $ | 2,559.6 | |||||||
| Restricted cash, end of period | 13.2 | 2,014.3 | |||||||||
Cash and cash equivalents, and restricted cash end of the period | $ | 372.9 | $ | 4,573.9 | |||||||
Cash Flows Provided by Operating Activities
Net cash provided by operating activities consists of net income (loss) adjusted for non-cash items, such as: depreciation and amortization of property and equipment and intangible assets, deferred income taxes, share-based compensation, mark to market adjustments on financial instruments, mark to market adjustment on contingent shares, deferred finance charges and for changes in net working capital assets and liabilities.
The decrease of $97.1 in net cash provided by operating activities was primarily due to payments in the first quarter of 2022 to respective employees via payroll from restricted cash related to the CPA Global Equity Plan and higher working capital requirements, partially offset by higher earnings attributable to increased revenues and a reduction in employee related costs driven by the cost-saving and margin improvement programs designed to generate substantial incremental cash flow.
53
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except share and per share data, option prices, ratios or as noted)
| Net Working Capital | |||||||||||||||||||||||
| June 30, 2022 | December 31, 2021 | June 30, 2021 | December 31, 2020 | ||||||||||||||||||||
| Current assets | $ | 1,360.2 | $ | 1,637.2 | $ | 5,316.4 | $ | 1,147.6 | |||||||||||||||
| Current liabilities | 1,661.5 | 1,902.0 | 3,360.6 | 1,423.1 | |||||||||||||||||||
| Net Working Capital | $ | (301.3) | $ | (264.8) | $ | 1,955.8 | $ | (275.5) | |||||||||||||||
Cash Flows Used in Investing Activities
Cash used in investing activities are primarily for acquisitions and capital expenditures, while cash inflows are primarily proceeds from divestitures.
The $41.8 increase in cash used in investing activities was primarily due to increased capital expenditures associated with product development. Our capital expenditures in both 2022 and 2021 consisted primarily of capitalized labor, consulting and other costs associated with product development.
Cash Flows Used in Financing Activities
During the six months ended June 30, 2022, net cash used in financing activities was primarily driven by the use of $175.0 for repurchases of the Company's ordinary shares and $37.7 used for payment of cash dividends associated with our MCPS. During the six months ended June 30, 2021, net cash provided by financing activities was primarily related to the cash raised to finance the purchase price of the ProQuest acquisition in December 2021, which included: (i) the private placement offering of $1,000.0 in aggregate principal amount of Senior Secured Notes due 2028 and $1,000.0 in aggregate principal of Senior Notes due 2029, (ii) net proceeds of $1,393.2 from the issuance of our 5.25% Series A MCPS, and (iii) net proceeds of $728.8 from the ordinary shares that were issued and sold by the Company in June 2021.
Free Cash Flow and Adjusted Free Cash Flow (non-GAAP measures)
The following table reconciles Free cash flow and Adjusted free cash flow, which are non-GAAP measures, to net cash provided by operating activities:
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net cash provided by operating activities | $ | 164.6 | $ | 261.7 | |||||||
| Capital expenditures | (89.1) | (62.0) | |||||||||
| Free cash flow | $ | 75.5 | $ | 199.7 | |||||||
Cash paid for CPA Global equity plan(1) | 150.7 | — | |||||||||
Cash paid for restructuring costs(2) | 21.7 | 48.7 | |||||||||
Cash paid for transaction related costs(3) | 7.9 | 8.8 | |||||||||
Cash paid for other costs(4) | 2.3 | 1.3 | |||||||||
| Adjusted free cash flow | $ | 258.1 | $ | 258.5 | |||||||
(1) Includes cash funded by a trust related to CPA Global equity plan payout upon vesting. | |||||||||||
(2) Reflects cash payments for costs primarily related to restructuring and lease-exit activities associated with the One Clarivate, ProQuest and CPA Global Programs. The costs associated with the CPA Global program were substantially complete as of June 30, 2022. | |||||||||||
(3) Includes cash paid for costs incurred to complete business combination transactions, which comprises of acquisitions, dispositions and capital market activities, as well as advisory, legal, and other professional and consulting costs. | |||||||||||
(4) Includes cash paid for other costs that do not reflect our ongoing operating performance. | |||||||||||
Adjusted free cash flow was consistent with the prior year period, primarily due to higher working capital requirements and increased capital spending, offset by higher earnings attributable to increased revenues, a reduction in employee related costs and the mark to market gain on financial instruments.
54
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except share and per share data, option prices, ratios or as noted)
There have been no 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 for the year ended December 31, 2021, 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 - Liquidity - Debt Profile section, in our Annual Report on Form 10-K for the year ended December 31, 2021.
Revolving Credit Facility
On March 31, 2022, the Company’s direct and indirect subsidiaries that are borrowers or guarantors under the Credit Agreement dated as of October 31, 2019, (the "Credit Agreement") entered into an amendment thereto, pursuant to which the total revolving credit commitments thereunder were further increased by $400.0 to $750.0 in the aggregate and the maturity date for revolving credit commitments was extended to March 31, 2027, subject to a “springing” maturity date that is 90 days prior to the maturity date of (i) the term loans outstanding under the Credit Agreement as of the date of the amendment or (ii) the 4.50% senior secured notes due in 2026 and issued by Camelot Finance S.A. (but only to the extent such term loans or senior secured notes have not, prior thereto, been refinanced or extended to have a maturity date of no earlier than 90 days after March 31, 2027).
Credit Facilities
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 contain 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), 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 require us to comply with a springing financial covenant pursuant to which, as of the first quarter of 2020, 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 35% of the revolving credit facility (excluding (i) non-cash collateralized, issued and undrawn letters of credit in an amount up to $20.0 and (ii) any cash collateralized letters of credit) is utilized at such date. As of June 30, 2022, our consolidated coverage ratio was 5.34 to 1.00 and our consolidated leverage ratio was 4.30 to 1.00. As of the date of this Report, we are in compliance with the covenants in the credit facilities.
The credit facilities provide that, upon the occurrence of certain events of default, our obligations thereunder may be accelerated and the lending commitments terminated. Such events of default include payment defaults to the lenders, material inaccuracies of representations and warranties, covenant defaults, cross-defaults to other material indebtedness (including the secured notes due in 2026), voluntary and involuntary bankruptcy proceedings, material money judgments, loss of perfection over a material portion of collateral, material ERISA/pension plan events, certain change of control events and other customary events of default, in each case subject to threshold, notice and grace period provisions.
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.
Dividends on our mandatory convertible preferred shares are payable, as and if declared by our Board of Directors, at an annual rate of 5.25% of the liquidation preference of $100.00 per share. We may pay declared dividends in cash or, subject to certain limitations, in our ordinary shares, or in any combination of cash and ordinary shares, on March 1, June 1, September 1 and December 1 of each year, commencing on September 1, 2021 and ending on, and including, June 1, 2024. See Note 19 - Commitments and Contingencies in Item 1, Financial Statements and Supplementary Data, for additional information.
The Company is engaged in various legal proceedings and claims that have arisen in the ordinary course of business. We have taken what we believe to be adequate reserves related to the litigation and threatened claims. We maintain appropriate insurance policies in place, which are likely to provide some coverage for these liabilities or other losses that may arise from
55
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except share and per share data, option prices, ratios or as noted)
these litigation matters. See Note 19 - Commitments and Contingencies in Item 1, Financial Statements and Supplementary Data, for additional information.
Critical Accounting Policies, Estimates and Assumptions
There have been no 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 for the year ended December 31, 2021.
Recently Issued and Adopted Accounting Pronouncements
For recently issued and adopted accounting pronouncements, see Note 3 - Summary of Significant Accounting Policies in Item 1. Financial Statements and Supplementary Data.
56
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For information regarding our exposure to certain market risks, see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk,” in the Form 10-K for the year ended December 31, 2021.
Foreign Currency Exchange Rate Risk
We are exposed to foreign currency exchange risk related to our transactions and our subsidiaries’ balances that are denominated in currencies other than the U.S. dollar, our functional currency. These currencies may continue to fluctuate, in either direction, especially as a result of central bank responses to inflation, concerns regarding future economic growth and other macroeconomic factors, and such fluctuations will affect financial statement line item comparability.
The following table presents the average of the quarterly weighted average exchange rates of the currencies, which have the most significant impact on our business:
| Rate for 1 USD | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||
| Currency: | 2022 | 2021 | Percentage Change | 2022 | 2021 | Percentage Change | ||||||||||||||||||||||||||||||||
| GBP | $ | 0.80 | $ | 0.72 | 11 | % | $ | 0.77 | $ | 0.72 | 7 | % | ||||||||||||||||||||||||||
| EUR | 0.94 | 0.83 | 13 | % | 0.92 | 0.83 | 11 | % | ||||||||||||||||||||||||||||||
| JPY | 129.66 | 109.46 | 18 | % | 123.02 | 107.71 | 14 | % | ||||||||||||||||||||||||||||||
Interest Rate Risk
Our interest rate risk arises primarily from our borrowings at floating interest rates. Borrowings under our credit facilities are subject to floating base interest rates, plus a margin. As of June 30, 2022, we had $2,979.5 of floating rate debt outstanding under our credit facilities, consisting of borrowings under the revolving and term loan facilities. For the term loan facility, the base rate is one-month LIBOR (subject to a floor of 0.00% for $1,228.5 and 1.00% for $1,576.0), which was at 1.79% at June 30, 2022, or Prime plus a margin of 2.25% per annum, as applicable depending on the borrowing. For the revolving credit facility, the base interest rate is at Term SOFR, plus a 0.1% SOFR adjustment, plus 3.25% per annum (or 2.75% per annum, based on first lien leverage ratios) or Prime plus a margin of 2.25% per annum, as applicable depending on the borrowing. The interest rate margins under our credit facilities will decrease upon the achievement of certain first lien net leverage ratios (as the term is used in the Credit Agreement). Of the total debt outstanding under our credit facilities, we hedged $448.8 of our principal amount of our floating rate debt using interest rate swaps. As a result, $2,530.7 of our outstanding borrowings effectively bore interest at floating rates. A 0.125 basis point increase or decrease in the applicable base interest rate under our credit facilities would have an impact of $0.5 and $0.9 on our cash interest expense for the three and six months ended June 30, 2022.
For additional information on our outstanding debt and related hedging, see Item 1. Financial Statements and Supplementary Data - Notes to the Condensed Consolidated Financial Statements - Note 8 - Derivative Instruments, Note 11 - Debt, and Note 22 - Subsequent Events.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
Pursuant to Rules 13a-15(b) and 15d-15(b) under the Securities Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2022, due to the material weaknesses in our internal control over financial reporting described below, our disclosure controls and procedures were not effective to ensure reasonable assurance that the information required to be disclosed in the reports required to be filed or submitted under the Securities Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
57
Material Weaknesses in Internal Control Over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.
Management identified material weaknesses in our internal control over financial reporting related to: 1) the lack of an effectively designed control over the communication of modifications to pre-existing compensation agreements in an acquisition transaction between legal function and the accounting function to ensure the accounting impact of the modifications could be evaluated, and (2) the lack of an effectively designed control that is designed with a sufficient level of precision to allow for an appropriate review of the tax balances associated with the opening balance sheet of acquired entities, as disclosed in our Form 10-K for the year ended December 31, 2021.
Remediation Progress of Previously Identified Material Weakness
To address the previously reported material weakness in internal control over financial reporting related to the communication of modifications to pre-existing compensation agreements in an acquisition transaction, as disclosed in Part II, Item 9A in our 2021 Annual Report on Form 10-K, we designed and implemented new control activities to identify and communicate the inventory of pre-existing compensation agreements in an acquisition transaction, and any modifications of such agreements, to the accounting department through the transaction close date to ensure the inventory includes the current version of the agreements.
To address the previously reported material weakness in internal control over financial reporting related to the tax balances associated with the opening balance sheet of acquired entities, as disclosed in Part II, Item 9A in our 2021 Annual Report on Form 10-K, we designed and implemented enhanced control activities to operate periodically during the measurement period to allow for an appropriate review of the tax balances.
The control activities described above were designed and implemented during the first quarter of 2022.
Changes in Internal Control Over Financial Reporting
There were no changes in Clarivate’s internal control over financial reporting during the second quarter 2022 that materially affected, or is reasonably likely to materially affect, internal control over financial reporting.
PART II. Other Information
Item 1. Legal Proceedings
From time to time, we are a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of our business. While the outcomes of these matters are uncertain, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on our consolidated financial position, results of operations or cash flows. For additional discussion of legal proceedings, see Item 1. Financial Statements and Supplementary Data - Notes to the Consolidated Financial Statements - Note 19 in this Report.
Item 1A. Risk Factors
There have been no material changes to the risk factors associated with our business as disclosed in Part I, Item 1A of our 2021 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table sets forth the total number of shares purchased, the average price paid per share, the total number of shares purchased as part of publicly announced programs, and the approximate dollar value of shares that may yet be purchased under the programs during each month during the six months ended June 30, 2022.
58
| Period | Total Number of Shares Purchased(1) | Price Paid Per Share | Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs | Approx. Dollar value of shares that may Yet Be Purchased Under Plans or Programs | ||||||||||||||||||||||
| January 1, 2022-January 31, 2022 | 9,580 | $ | 18.00 | — | $ | — | ||||||||||||||||||||
| February 1, 2022-February 28, 2022 | 7,825 | $ | 16.78 | — | $ | 1,000 | ||||||||||||||||||||
| March 1, 2022-March 31, 2022 | 4,559,871 | $ | 16.10 | 4,106,285 | $ | 934 | ||||||||||||||||||||
| April 1, 2022-April 30, 2022 | 6,718,312 | $ | 16.44 | 6,611,994 | $ | 825 | ||||||||||||||||||||
| May 1, 2022-May 31, 2022 | 257,078 | $ | 14.36 | $ | 825 | |||||||||||||||||||||
| June 1, 2022-June 30, 2022 | 20,413 | $ | 13.51 | — | $ | 825 | ||||||||||||||||||||
| Total | 11,573,079 | $ | 16.26 | 10,718,279 | ||||||||||||||||||||||
(1) Includes shares withheld to satisfy tax withholding obligations on behalf of employees that occur upon vesting and delivery of outstanding shares underlying stock options and restricted stock units under the 2019 Incentive Award Plan. | ||||||||||||||||||||||||||
Item 5. Other Information
Holders of 10% of Our Ordinary Shares
A Clarivate subsidiary has applied for a payment service provider license in Germany. As part of the application process, the subsidiary is required to provide the German Federal Financial Services Supervisory Authority and the German Central Bank with information about each person holding a “significant interest,” direct or indirect, in the subsidiary, which includes any holder of 10% or more of Clarivate’s ordinary shares. Once the subsidiary is licensed, which we expect to occur in the second half of 2022, any person who intends to acquire such a “significant interest” will be required to notify the German regulators and obtain approval prior to completing the acquisition. The notification and approval process includes the provision of financial and background information about the intended acquirer to the German regulators on a confidential basis. Failure to notify and obtain regulatory approval when required could result in fines and mandated divestiture of the acquirer’s Clarivate ordinary shares.
Item 6. Exhibits and Financial Statement Schedules
EXHIBIT INDEX
| 10.1* | |||||
| 10.2* | |||||
| 31* | |||||
| 32* | |||||
| 101* | The following information from our Form 10-Q for the quarterly period ended June 30, 2022, formatted in Inline eXtensible Business Reporting Language: (i) Condensed Consolidated Statements of Comprehensive Income (unaudited), (ii) Condensed Consolidated Balance Sheets (unaudited), (iii) Condensed Consolidated Statements of Changes in Equity (unaudited), (iv) Condensed Consolidated Statements of Cash Flows (unaudited), and (v) the Notes to the Condensed Consolidated Financial Statements (unaudited). | ||||
| 104* | The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in Inline XBRL | ||||
* Filed herewith.
59
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of London, United Kingdom on August 9, 2022.
| CLARIVATE PLC | |||||
| By: | /s/ Jonathan M. Collins | ||||
| Name: Jonathan M. Collins | |||||
| Title: Executive Vice President & Chief Financial Officer | |||||
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| DATED 25 MAY 2022 | ||||||||
(1)CPA LIMITED (2)GORDON SAMSON | ||||||||
| SERVICE AGREEMENT | ||||||||
INDEX
1. INTERPRETATION
2. TERM OF APPOINTMENT
3. DUTIES
4. PLACE OF WORK
5. HOURS OF WORK
6. SALARY
7. EXPENSES
8. PERFORMANCE BASED REMUNERATION
9. INSURED BENEFITS
10. HOLIDAYS
11. INCAPACITY
12. OUTSIDE INTERESTS
13. CONFIDENTIAL INFORMATION
14. INTELLECTUAL PROPERTY
15. DIRECTORSHIP
16. TERMINATION
17. SUSPENSION/GARDEN LEAVE
18. OBLIGATIONS UPON TERMINATION
19. POST-TERMINATION RESTRICTIONS
20. DISCIPLINARY AND GRIEVANCE PROCEDURES
21. PENSIONS
22. PARENTAL LEAVE
23. DATA PROTECTION AND MONITORING
24. OTHER OBLIGATIONS
25. LIQUIDATED DAMAGES
26. RECONSTRUCTION AND AMALGAMATION
27. NOTICES
28. ENTIRE AGREEMENT
29. COLLECTIVE AGREEMENT
30. VARIATION
31. COUNTERPARTS
32. GOVERNING LAW AND JURISDICTION
SCHEDULE 1 - POST TERMINATION RESTRICTIONS 17
This Agreement is dated __ May 2022
PARTIES
(1)CPA Limited incorporated and registered in Jersey whose registered office is at Liberation House, St Helier, Jersey, JE1 1BL (the “Company”).
(2)Gordon Samson of [ADDRESS REDACTED] (the “Employee”).
AGREED TERMS
1.INTERPRETATION
1.aThe definitions and rules of interpretation in this clause 1.1 apply in this agreement.
Appointment: the employment of the Employee by the Company on the terms of this agreement.
Capacity: as agent, consultant, director, employee, owner, partner, shareholder or in any other capacity.
Commencement Date: 1 February 2022.
Confidential Information: information and Trade Secrets in whatever form (including, without limitation, in written, oral, visual or electronic form or on any magnetic or optical disk or memory or cloud based storage and wherever located) relating to the business, products, methodologies, affairs and finances of the Company and any Group Company and which is for the time being confidential to the Company and any Group Company. This shall include, without limitation, financial and technical data, including pricing policies, business plans and outlooks, brand formulations, non-public financial results, commercial plans including mergers, acquisitions or divestitures, personnel strategies or major management changes, research activities, product lines and developments or plans, prototypes, and know-how relating to the business of the Company and any Group Company or any of their suppliers, clients, customers, agents, distributors, shareholders or management, including customer lists, and subscriptions lists. It shall include (but is not limited to) information that the Employee created, developed, received or obtained in connection with the Employee’s employment (including all Employment IPRs) for the Company or any Group Company, and whether or not such information (if in anything other than oral form) is marked confidential or the Employee is told it is confidential.
Employment Inventions: any invention which is made wholly or partially by the Employee at any time in the course of their employment with the Company (whether or not during working hours or using Company premises or resources, and whether or not recorded in material form).
Employment IPRs: Intellectual Property Rights created by the Employee in the course of their employment with the Company (whether or not during working hours or using Company premises or resources).
Garden Leave: any period during which the Company has exercised its rights under clause 17.
Group Company: any firm, company, corporation, business entity or other organization:
i. which is directly or indirectly controlled by the Employer;
ii. which directly or indirectly controls the Employer;
iii. which is a holding body, subsidiary or wholly-owned subsidiary of the Employer as defined by Article 2 of the Companies (Jersey) Law 1991;
iv. which is directly or indirectly controlled by a third party who also directly or indirectly controls the Employer; or
v. which is the successor in title or assign of the firms, companies, corporations, business entities or other organizations referred to herein,
and "Group Company" and "Group Companies" shall be construed accordingly. This definition shall expressly include Camelot Holdings (Jersey) Limited and its direct and indirect subsidiaries, or any company that is a successor (including, without limitation, by change of name, dissolution, merger, consolidation, reorganization, sale or other disposition) to any such company, or that becomes a holding body of Camelot Holdings (Jersey) Limited.
Incapacity: any sickness or injury which prevents the Employee from carrying out their duties.
Intellectual Property Rights: patents, rights to inventions, copyright and related rights, trade marks, trade names and domain names, rights in get-up, rights in goodwill or to sue for passing off, unfair competition rights, rights in designs, rights in computer software, database rights, topography rights, rights in Confidential Information (including know-how and trade secrets) and any other intellectual property rights, in each case whether registered or unregistered and including all applications (or rights to apply) for, and renewals or extensions of, such rights and all similar or equivalent rights or forms of protection which subsist or will subsist now or in the future in any part of the world.
Invention: any invention, idea, discovery, development, improvement or innovation, whether or not patentable or capable of registration, and whether or not recorded in any medium.
Pre-Contractual Statement: any undertaking, promise, assurance, statement, representation, warranty or understanding (whether in writing or not) of any person (whether party to this agreement or not) relating to the Employee's employment under this agreement which is not expressly set out in this agreement or any documents referred to in it.
Rules has the meaning given to it in clause 24.1.
Termination: the termination of the Employee's employment with the Company however caused.
Trade Secrets: all forms and types of financial information (including pricing), business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing by the Employer. The Employer confirms, and the Employee understands, that the Employer is the owner of its Trade Secrets, that the Employer has taken reasonable steps, under the circumstances, to protect and maintain the secrecy of its Trade Secrets, and that the Employer derives economic value, both tangible and intangible, from its Trade Secrets.
1.aThe headings in this agreement are inserted for convenience only and shall not affect its construction.
1.bA reference to a particular law is a reference to it as it is in force for the time being taking account of any amendment, extension, or re-enactment and includes any subordinate legislation for the time being in force made under it.
1.cA reference to one gender includes a reference to the other gender.
1.dThe schedules to this agreement form part of (and are incorporated into) this agreement.
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2.TERM OF APPOINTMENT
2.aThe Company shall employ the Employee and the Employee shall serve the Company on the terms of this agreement, including the obligations under Schedule 1. The parties agree that the Appointment commenced on the Commencement Date and shall continue, subject to the remaining terms of this agreement, until terminated by either party in accordance with the terms of this agreement.
2.bThe Employee's employment with a previous employer counts towards the Employee's period of continuous employment with the Company. The start date for continuous employment is 1 September 2014.
2.cThe Employee represents and warrants to the Company that, by entering into this agreement or performing any of their obligations under it, they will not be in breach of any court order or any express or implied terms of any contract or other obligation binding on them and undertakes to indemnify the Company against any claims, costs, damages, liabilities or expenses which the Company may incur as a result if they are in breach of any such obligations.
2.dThe Company agrees that it will provide the Employee with a housing licence under the Control of Housing and Work (Jersey) Law 2012 for such period as he shall require the same.
2.eThe Employee warrants that provided the Company complies with clause 2.4 they are entitled to work in Jersey without any additional immigration approvals and will notify the Company immediately if they cease to be so entitled during the Appointment.
2.fThe Employee consents to the transfer of their employment, under no less favourable terms, under this agreement to another Group Company at any time during the Appointment.
3.DUTIES
3.aThe Employee shall serve the Company as Chief Product Officer or in such other role as the Company considers appropriate provided the same is at an equivalent responsibility level.
3.bThe Company may require the Employee (as part of their duties of employment) to perform duties or services not only for the Company but also for any Group Company. The Company may at its discretion assign the Employee's employment to another Group Company on the same terms and conditions set out in this contract, subject to any variations to this contract that may subsequently have been agreed between you and the Company.
3.cDuring the Appointment the Employee shall:
(i)act as a director of the Company and carry out duties on behalf of any other Group Company including, if so required, acting as an officer or consultant of any such Group Company;
(ii)comply with the articles of incorporation (as amended from time to time) of the Company and any Group Company of which they are a director;
(iii)abide by their fiduciary duties to the Company and any Group Company of which they are a director;
(iv)not do anything that would cause them to be disqualified from acting as a director;
(v)comply with all requirements, recommendations or regulations, as amended from time to time, of the JFSC and all regulatory authorities relevant to the Company and any Group Company and any code of practice issued by the Company (as amended from time to time) relating to dealing in the securities of the Company and any Group Company;
(vi)comply with the requirements under legislation, regulation or Company policy on the disclosure of inside information and conflicts of interest, including submitting annual conflicts disclosures;
(vii)unless prevented by Incapacity, devote the whole of their time, attention and abilities to the business of the Company and any Group Company;
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(viii)diligently exercise such powers and perform such duties as may from time to time be assigned to them jointly with such person or persons as the Company may appoint to act jointly with them;
(ix)comply with all reasonable and lawful directions given to them by the Company;
(x)promptly make such reports to the Company in connection with the affairs of the Company and any Group Company on such matters and at such times as are reasonably required;
(xi)report their own wrongdoing and any wrongdoing or proposed wrongdoing of any other employee or director of the Company and any Group Company to the Company immediately on becoming aware of it; and
(xii)use their best endeavours to promote, protect, develop and extend the business of the Company and any Group Company;
3.dAs an Officer of Clarivate Plc, Employee will be subject to applicable SEC rules including Section 16 of the Securities Exchange Act 1934 which sets out the regulatory filing responsibilities to which Employee will be required to adhere. Employee may also be required to comply with Clarivate Plc’s Share Ownership Guidelines which require Employee to own shares of Clarivate Plc equal to 3 times Employee’s basic salary by 5 years following 6 July 2021.
3.eIf at any time during employment the Employee is directly or indirectly approached or solicited by any company, firm or person with a view to, or with the intention of, the Employee taking up employment with or otherwise entering into a business relationship with any third party who or which provides or proposes to provide services in competition with the Company, or the Employee becomes aware that a fellow employee has received such an approach, they must disclose that fact and the names of the parties involved immediately to the Company. Otherwise, the Employee must treat this information as confidential and not disclose it to any other person.
3.fThe Employee shall comply with any rules, policies and procedures of the Company or any Group Company issued from time to time.
3.gAll documents, manuals, hardware and software provided for the Employee's use by the Company, and any data or documents (including copies) produced, maintained or stored on the Company's computer systems or other electronic equipment (including mobile phones), remain the property of the Company.
4.PLACE OF WORK
4.aThe Employee's normal place of work is Employee's home address which is currently as above. The Employee's working pattern at this location is subject to agreement and may vary to accommodate the needs of the business. During the Employee's employment, the Company may require the Employee to work at such other place within Jersey which the Company may reasonably require for the proper performance and exercise of their duties.
4.bThe Employee agrees to travel (both within Jersey or abroad) as may be required for the proper performance of their duties and responsibilities as a Company employee.
5.HOURS OF WORK
5.aThe Employee's normal hours of work shall be 9.00am to 5.30pm on Mondays to Fridays and such additional hours as are necessary for the proper performance of their duties, with an hour unpaid each day for lunch. The Employee acknowledges that they shall not receive further remuneration in respect of such additional hours.
6.SALARY
6.aThe Employee shall be paid an initial salary of £400,000.00 per annum (less any statutory deductions and inclusive of any fees due to the Employee as a director or other office holder of the Company or any Group Company).
6.bThe Employee's salary shall accrue from day to day and be payable in accordance with the Company’s standard payroll practices.
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6.cAny salary increases will be reviewed annually and within the discretion of the Company. The Company is under no obligation to award an increase following a salary review. There will be no review of the salary after notice has been given by either party to terminate the Appointment.
6.dThe Company may deduct from the salary, or any other sums owed to the Employee, any money owed to the Company or any Group Company by the Employee.
7.EXPENSES
7.aThe Company shall reimburse (or procure the reimbursement of) all reasonable expenses wholly, properly and necessarily incurred by the Employee in the course of the Appointment, subject to production of receipts or other appropriate evidence of payment and provided such expenses are in accordance with the Company's policies including the travel and entertainment polic(ies).
7.bThe Employee shall abide by the Company's policies on expenses as communicated to them from time to time.
7.cAny credit card supplied to the Employee by the Company shall be used only for expenses incurred by Employee in the course and scope of the Appointment.
8.PERFORMANCE BASED REMUNERATION
8.aEmployee is eligible to participate in the Company's Annual Incentive Plan (“AIP” or the “Scheme”). Employee’s target AIP bonus is 100% of the Employee's basic salary and will be subject to the rules of the scheme in force from time to time. The Scheme is a discretionary bonus Scheme, and any payment will be made only after the achievement of defined financial and/or individual goals. The Company reserves the right to alter, amend or replace the Scheme at any time. Any bonus payment under the Scheme is made entirely at the discretion of the Company and subject to the Scheme rules. Any payment under the scheme will not be pensionable, but will be subject to deductions for tax and social security contributions.
8.bEmployee will be eligible to receive grants under the Company’s Long Term Incentive Plan (LTIP). All grants of Restricted Share Units (RSUs) will be subject to the terms of the RSU grant notice, any RSU grant agreement issued to the Employee and the Plan rules. All grants of Performance Based RSUs (PSUs) will be subject to the relevant Metrics Summary in force, the terms of the PSU grant notice, any PSU agreement issued to the Employee and the Plan rules. Any future grants or awards under the Company’s LTIP are made entirely at the discretion of the Company and will be subject to the Plan rules, any grant agreements issued to the Employee, approval from to the Human Resources and Compensation Committee of the Board of Directors of Clarivate Plc, and to the relevant business and individual performance metrics related to any such grant.
9.INSURED BENEFITS
9.aThe Employee shall be entitled to participate in the Company's insured benefits, details of which are available from human resources, subject to:
(xiii)the terms of the relevant schemes, as amended from time to time;
(xiv)the rules or insurance policy of the relevant insurance provider, as amended from time to time; and
(xv)the Employee satisfying the normal underwriting requirements of the relevant insurance providers and the premium being at a rate which the Company considers reasonable.
9.bIf an insurance provider refuses for any reason to provide any insured benefit to the Employee the Company shall not be liable to provide any replacement benefit of the same or similar kind or to pay any compensation in lieu of such benefit.
9.cThe Company in its sole and absolute discretion reserves the right to discontinue, vary or amend any one or all of the insured benefits (including the level of the Employee's cover), or to substitute other schemes, or alter the benefits available at any time on reasonable notice to the Employee.
10.HOLIDAYS
10.aEmployee shall be entitled to 28 days' paid holiday in each holiday year together with the usual Bank and public holidays in Jersey. The Company's holiday year runs between 1 January and 31
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December. If the Appointment commences part way through the holiday year, the Employee's holiday entitlement during the first year of the Appointment shall be calculated on a pro-rata basis, rounded up to the nearest whole day.
10.bHoliday shall be taken at such time or times as shall be approved in advance by Jerre Stead. The Employee shall not without the consent of the Company carry forward any accrued and unused holiday entitlement to a subsequent holiday year, nor receive any payment in lieu in respect of such entitlement, save as provided in clause 10.3.
10.cOn termination of the Appointment, the Employee shall be entitled to be paid in lieu of accrued but untaken holiday save that, where such termination is pursuant to clause 16.3 or follows the Employee's resignation in breach of clause 2.1, such accrued but untaken holiday shall be forfeited. The amount of the payment in lieu shall be calculated on the basis that each day of paid holiday is equal to 1/260 of the salary.
10.dIf the Employee has taken more holiday than their accrued entitlement at the date of termination of the Appointment, the Company shall be entitled to deduct the appropriate amount from any payments due to the Employee (on the basis that each day of paid holiday is equal to 1/260 of the salary).
10.eIf either party has served notice to terminate the Appointment, the Company may require the Employee to take any accrued but unused holiday entitlement during the notice period or, if applicable, any such holiday shall be deemed to be taken during any period of Garden Leave.
11.INCAPACITY
11.aSubject to the Employee's compliance with the Company's sickness absence procedures (as amended from time to time), they shall continue to receive their full salary and contractual benefits during any period of absence due to Incapacity for up to an aggregate of 65 working days in any rolling 52 week period. The Company will deduct the full value of any short-term incapacity allowance in Jersey at the prevailing rate on the date of payment of sick pay, whether or not the employee is eligible to receive or does receive such allowance. Once the Employee's entitlement to sick pay under this clause 11.1 has been exhausted, the Employee shall not normally be entitled to receive any further sick pay until they have returned to work for an unbroken period of at least two months.
11.bThe Employee agrees to undergo any medical examinations (at the Company's expense) by a doctor nominated by the Company should the Company so require. The Employee will be asked to agree that any report produced in connection with any such examination may be disclosed to the Company and the Company may discuss the contents of the report with the relevant doctor.
11.cIf the Incapacity is or appears to be occasioned by actionable negligence, nuisance or breach of any statutory duty on the part of a third party in respect of which damages are or may be recoverable, the Employee shall immediately notify the Company of that fact and of any claim, compromise, settlement or judgment made or awarded in connection with it and all relevant particulars that the Company may reasonably require. The Employee shall, if required by the Company, refund to the Company that part of any damages or compensation recovered by them relating to the loss of earnings for the period of the Incapacity as the Company may reasonably determine less any costs borne by them in connection with the recovery of such damages or compensation, provided that the amount to be refunded shall not exceed the total amount paid to the Employee by the Company in respect of the period of Incapacity.
11.dThe Company may terminate the Appointment by giving the notice specified in clause 2.1 or under clause 16 even when, as a result of such termination, the Employee would or might forfeit any entitlement to benefit from sick pay under clause 11, or where relevant any Insurance Benefit if applicable.
12.OUTSIDE INTERESTS
12.aSubject to clause 12.2, during the Appointment the Employee shall not, except as a representative of the Company or with the prior written approval of the Company, whether paid or unpaid, be directly or indirectly engaged, concerned or have any financial interest in any Capacity in any other business, trade, profession or occupation (or the setting up of any business, trade, profession or occupation).
12.bNotwithstanding clause 12.1, the Employee may hold an investment by way of shares or other securities of not more than 5% of the total issued share capital of any company (whether or not it is
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listed or dealt in on a recognised stock exchange) where such company does not carry on a business similar to or competitive with any business for the time being carried on by the Company or any Group Company. The Company may approve any exceptions to this clause in writing.
12.cThe Employee agrees to disclose to the Company any matters relating to their spouse or civil partner (or anyone living as such), children or parents which may, in the reasonable opinion of the Company, be considered to interfere, conflict or compete with the proper performance of the Employee's obligations under this agreement.
13.CONFIDENTIAL INFORMATION
13.aThe Employee acknowledges that in the course of the Appointment they will have access to and be provided with or receive Confidential Information. The Employee has therefore agreed to accept the restrictions in this clause 13.
13.bThe Employee shall not (except in the proper course of their duties), either during the Appointment or at any time after its termination (howsoever arising), use or disclose to any person, company or other organisation whatsoever (and shall use their best endeavours to prevent the publication or disclosure of) any Confidential Information.
13.cThe restriction set out at clause 13.2 does not apply to:
(xvi)any use or disclosure authorised by the Company or required by law;
(xvii)any information which is already in, or comes into, the public domain other than through the Employee's unauthorised disclosure; or
(xviii)where the Employee is ordered to disclose the Confidential Information by a court of competent jurisdiction.
14.INTELLECTUAL PROPERTY
14.aThe Employee acknowledges that all Employment IPRs, Employment Inventions and all materials embodying them shall automatically belong to the Company to the fullest extent permitted by law. To the extent that they do not vest in the Company automatically, the Employee holds them on trust for the Company as a bare trustee.
14.bThe Employee acknowledges that, because of the nature of their duties and the particular responsibilities arising from the nature of their duties, they have, and shall have at all times while they are employed by the Company, a special obligation to further the interests of the Company.
14.cTo the extent that legal or beneficial title in any Employment IPRs or Employment Inventions does not vest in the Company by virtue of clause 14.1, the Employee agrees, immediately upon creation of such rights and inventions, to offer to the Company in writing a right of first refusal to acquire them on arm’s length terms to be agreed between the parties.
14.dThe Employee agrees:
(xix)to give the Company full written details of all Employment Inventions which relate to or are capable of being used in the business of the Company or any Group Company promptly on their creation;
(xx)at the Company's request and in any event on the termination of their employment to give to the Company all originals and copies of correspondence, documents, papers and records on all media which record or relate to any of the Employment IPRs;
(xxi)not to attempt to register any Employment IPR nor patent any Employment Invention unless requested to do so by the Company; and
(xxii)to keep confidential each Employment Invention unless the Company has consented in writing to its disclosure by the Employee.
14.eThe Employee waives all their present and future moral rights which arise under the Intellectual Property (Unregistered Rights) (Jersey) Law 2011, and all similar rights in other jurisdictions relating to any copyright which forms part of the Employment IPRs, and agrees not to support, maintain nor permit any claim for infringement of moral rights in such copyright works.
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14.fThe Employee acknowledges that, except as provided by law, no further remuneration or compensation other than that provided for in this agreement is or may become due to the Employee in respect of their compliance with this clause.
14.gIn furtherance of clause 14.1 or 14.3 (as applicable), the Employee undertakes to use their best endeavours to execute all documents and do all acts both during and after their employment by the Company as may, in the opinion of the Company, be necessary or desirable to vest the Employment IPRs in the Company, to register them in the name of the Company and to protect and maintain the Employment IPRs and the Employment Inventions. Such documents may, at the Company's request, include waivers of all and any statutory moral rights relating to any copyright works which form part of the Employment IPRs.
14.hThe Employee agrees to give all necessary assistance to the Company to enable it to enforce its Intellectual Property Rights against third parties, to defend claims for infringement of third party Intellectual Property Rights and to apply for registration of Intellectual Property Rights, where appropriate throughout the world, and for the full term of those rights.
14.iThe Employee hereby irrevocably agrees to appoint the Company (or such other person as the Company decides), immediately upon the Company's request, to be their attorney to execute and do any such instrument or thing and generally to use their name for the purpose of giving the Company or its nominee the benefit of this clause 14. The Employee shall not revoke or amend that power of attorney save upon or with the prior written instruction or consent of the Company. The Employee acknowledges in favour of a third party that a certificate in writing signed by any Director or the Secretary of the Company that any instrument or act falls within the authority conferred by the powers of attorney given pursuant to a request made under this clause 14 shall be conclusive evidence that such is the case.
15.DIRECTORSHIP
15.aExcept with the prior approval of the Company, or as provided in the articles of incorporation of the Company or any Group Company of which they are a director, the Employee shall not resign as a director of the Company or any Group Company.
15.bIf during the Appointment the Employee ceases to be a director of the Company or any Group Company (otherwise than by reason of their death, resignation or disqualification pursuant to the articles of incorporation of the Company or the relevant Group Company, as amended from time to time, or by statute or court order) the Appointment shall continue with the Employee as an employee only and the terms of this Agreement (other than those relating to the holding of the office of director) shall continue in full force and effect. The Employee shall have no claims in respect of such cessation of office.
16.TERMINATION
16.aEither party may terminate the Appointment, without cause, by providing the other party with at least six months' notice in writing.
16.bNotwithstanding clause 16.1, the Company may, in its sole and absolute discretion, terminate the Appointment at any time and with immediate effect by paying a sum in lieu of notice (Payment in Lieu) equal to the basic salary (as at the date of termination) which the Employee would have been entitled to receive under this Agreement during the notice period referred to at clause 16.1 (or, if notice has already been given, during the remainder of the notice period) less income tax and social security contributions. For the avoidance of doubt, the Payment in Lieu shall not include any element in relation to:
(xxiii)any bonus or commission payments that might otherwise have been due during the period for which the Payment in Lieu is made;
(xxiv)any payment in respect of benefits which the Employee would have been entitled to receive during the period for which the Payment in Lieu is made; and
(xxv)any payment in respect of any holiday entitlement that would have accrued during the period for which the Payment in Lieu is made.
16.cThe Employee shall have no right to receive a Payment in Lieu unless the Company has exercised its discretion in clause 16.2. No Payment in Lieu shall be made if the Company obtains evidence of gross misconduct on the part of the Employee after agreement to make the payment is reached but before the payment is made. Furthermore if, following payment of the Payment in Lieu, the Employer
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becomes aware of circumstances which would have entitled it to terminate the Employee’s employment without notice or pay in lieu of notice, the Employee agrees to repay to the Employer a sum equivalent to the Payment in Lieu and hereby acknowledges that this sum shall be recoverable by the Employer as a debt.
16.dThe Company may terminate the Appointment with immediate effect without notice and with no liability to make any further payment to the Employee (other than in respect of amounts accrued due at the date of termination) if the Employee:
(xxvi)is disqualified from acting as a director or resigns as a director from the Company or any Group Company without the prior written approval of the Company;
(xxvii)is guilty of a serious breach of the rules or regulations as amended from time to time of any regulatory authorities relevant to the Company or any Group Company or any code of practice or compliance manual issued by the Company or any Group Company (as amended from time to time);
(xxviii)is guilty of any gross misconduct affecting the business of the Company or any Group Company;
(xxix)commits any serious or repeated breach or non-observance of any of the provisions of this agreement or refuses or neglects to comply with any reasonable and lawful directions of the Company;
(xxx)is, in the reasonable opinion of the Company, negligent and incompetent in the performance of their duties;
(xxxi)is declared en desastre or makes any arrangement with or for the benefit of their creditors or is subject to any saisie, bankruptcy, sequestration or similar proceedings;
(xxxii)is convicted of any criminal offence (other than an offence under any road traffic legislation in Jersey or elsewhere for which a fine or non-custodial penalty is imposed);
(xxxiii)ceases to be eligible to work in Jersey, or if the Company is no longer lawfully able to employ the Employee under the terms of the Control of Housing and Work (Jersey) Law 2012;
(xxxiv)is guilty of any fraud or dishonesty (including but not limited to acting in breach of the Company's anti-corruption and bribery policy and related procedures) or acts in any manner which in the opinion of the Company brings or is likely to bring the Employee or the Company or any Group Company into disrepute or is materially adverse to the interests of the Company or any Group Company; or
(xxxv)is guilty of a serious breach of any rules issued by the Company from time to time regarding its electronic communications systems.
16.aThe rights of the Company under clause 16.4 are without prejudice to any other rights that it might have at law to terminate the Appointment or to accept any breach of this agreement by the Employee as having brought the agreement to an end. Any delay by the Company in exercising its rights to terminate shall not constitute a waiver thereof.
16.bIf the Company terminates the Appointment under clause 16.1, the Company shall pay to the employee a fixed sum, equivalent to six months' basic salary under clause 6.1 as at the termination date, as compensation for loss of office. Payment under this clause 16.6 is conditional on the Employee agreeing to and signing a valid settlement agreement, which amongst other things, would waive any and all claims against the Company and any Group Companies.
17.SUSPENSION/GARDEN LEAVE
17.aThe Company has the right to suspend all or any of the Employee's duties or require the Employee to take garden leave for such period and on such terms as it considers appropriate, including a requirement that the Employee will not attend at the Company's premises or contact any of its customers, suppliers or staff. The Company can exercise this right at any time (including during a period of notice terminating of employment) and whether or not it is in connection with a disciplinary investigation. Suspension/garden leave will be on full pay and contractual benefits will continue to be provided).
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17.bDuring any period of suspension/Garden Leave the Company shall be under no obligation to provide any work to, or vest any powers in, the Employee, who shall have no right to perform any services for the Company or any Group Company.
17.cDuring any period of suspension/Garden Leave (unless suspension without pay or on reduced pay is a sanction imposed at a disciplinary hearing) the Employee shall:
(xxxvi)continue to receive their salary and all contractual benefits (except bonuses which shall no longer be due) in the usual way and subject to the terms of any benefit arrangement;
(xxxvii)be deemed to take any accrued holiday leave during the period of Garden Leave;
(xxxviii)remain an employee of the Company and bound by the terms of this agreement;
(xxxix)not, without the prior written consent of the Company, attend their place of work or any other premises of the Company or any Group Company;
(xl)not, without the prior written consent of Company, contact or deal with (or attempt to contact or deal with) any officer, employee, consultant, client, customer, supplier, agent, distributor, shareholder, adviser or other business contact of the Company or any Group Company; and
(xli)(except during any periods taken as holiday in the usual way) ensure that Jerre Stead knows where they will be and how they can be contacted during each working day and shall comply with any written requests to contact a specified employee of the Company at specified intervals.
18.OBLIGATIONS UPON TERMINATION
18.aOn termination of the Appointment (howsoever arising) or, if earlier, at the start of a period of Garden Leave following the service of notice or purported termination of the Appointment by the Employee, the Employee shall:
(xlii)immediately upon the Company’s request resign, without any claim for compensation, from any directorships in the Company or any Group Company or from any position which they holds as a trustee or other officer in relation to the business of the Company or any Group Company;
(xliii)transfer without payment to the Company or as it may direct any shares or other securities in the Company or any Group Company held by them as a nominee or trustee on behalf of the Company or any Group Company and deliver to the Company the related certificates;
(xliv)subject to clause 17.3(a) if applicable, immediately deliver to the Company all documents, books, materials, records, correspondence, papers and information (on whatever media and wherever located) relating to the business or affairs of the Company or any Group Company or its or their business contacts, any keys, credit card and any other property of the Company or any Group Company, which is in their possession or under their control;
(xlv)where the Employee is on Garden Leave they shall not be required to return to the Company any property provided to them as a contractual benefit until the end of Garden Leave;
(xlvi)if so instructed by the Company, irretrievably delete any information relating to the business of the Company or any Group Company stored on any magnetic or optical disk or memory and all matter derived from such sources which is in their possession or under their control outside the Company's premises; and
(xlvii)provide a signed statement that they have complied fully with her obligations under this clause 18.1.
18.bThe Employee hereby irrevocably agrees to appoint the Company (or such other person as the Company decides), immediately upon they Company's request, to be their attorney to execute and do any such instrument or thing and generally to use their name for the purpose of giving the Company or its nominee the full benefit of clause 18.1(a) and clause 18.1(b). The Employee shall not revoke or amend that power of attorney save upon or with the prior written instruction or consent of the Company.
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18.cSave as set out in this agreement, on termination of the Appointment howsoever arising the Employee shall not be entitled to any compensation for the loss of any rights or benefits under any share option, bonus, long-term incentive plan or other profit sharing scheme operated by the Company or any Group Company in which they may participate.
19.POST-TERMINATION RESTRICTIONS
19.aThe Employee agrees that it is a condition of the Appointment that they will sign and return a copy of the post-termination restrictions at Schedule 1 to this Agreement at the same time as they sign this Agreement.
20.DISCIPLINARY AND GRIEVANCE PROCEDURES
20.aThe Employee is subject to the Company's disciplinary and grievance procedures, copies of which are available from the Intranet. These procedures do not form part of the Employee's contract of employment.
21.PENSIONS
21.aThe Company will pay a contribution equivalent to 10% of the Employee's basic salary to a nominated pension scheme in Jersey, provided that the scheme has been approved by Revenue Jersey.
22.PARENTAL LEAVE
22.aThere are no contractual terms in relation to parental leave, including maternity leave. Any provisions are in accordance with the statutory position in Jersey from time to time.
23.DATA PROTECTION AND MONITORING
23.aThe Company will collect and process information relating to the Employee in accordance with the privacy notice which is available on the intranet.
23.bThe Employee is required to comply with the data protection policy when handling personal data in the course of employment including personal data relating to any employee, worker, contractor, customer, client, supplier or agent of the Company's or any Group Company. The Employee will also comply with the Company's relevant IT and communications policies, which may include social media, use of own devices, and agile working policies.
23.cFailure to comply with any of the policies listed above in clause 23.2 may be dealt with under the Company's disciplinary procedure and, in serious cases, may be treated as gross misconduct leading to summary dismissal.
23.dThe Company for itself and all Group Companies has adopted a policy of monitoring all employees’ use of telephones, email and the internet where it is necessary. Monitoring is carried out only for lawful business purposes including: to establish the existence of facts relevant to the business; to ascertain compliance with regulatory and self-regulatory practices and procedures that are relevant to the business; to ascertain or demonstrate standards that employees achieve or ought to achieve when using the Company’s or any Group Company’s communication systems; to prevent or detect crime; to investigate or detect unauthorised use of the communication systems; to ensure the effective operation of the communications systems; and to determine whether received communications are relevant to the Company’s or any Group Company’s business. The Employee hereby acknowledges that the telephone calls they make or receive, their incoming and outgoing email messages, and the internet sites they access during the course of their work may be intercepted by authorised representatives of the Company or any Group Company and by signing these terms and conditions they consent to such interception for the purposes state.
24.OTHER OBLIGATIONS
24.aIn addition to complying with applicable legislation, you are required to comply with:
(xlviii)any rules of any regulator or supervisory authority or governing body relevant to or with oversight over the business of the Company or a Group Company;
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(xlix)the Company or any Group Company's corporate governance policies, including the code of conduct, and policies in relation to bribery, corruption, fraud, and whistleblowing. These policies are available on the intranet.
(together being the Rules) and comply with all directions in respect thereof that may be imposed from time to time by the Company or any Group Company.
24.bIn particular you are required to:
(l)act and conduct yourself in conformity with, and so as to result in the Company and any Group Company complying with, the Rules as if they were directly binding on you, so far as it is reasonably in your power to do so;
(li)comply and co-operate fully with all instructions, directions, requirements or requests properly made or imposed by or on behalf of any relevant body under the Rules, including, but not limited to, a requirement to comply and co-operate fully with all instructions, directions, requirements or requests properly made or imposed by or on behalf of any relevant body under the Rules, including, but not limited to, a requirement to make yourself readily available for the purposes of, and truthfully to answer all questions put to you in the course of any inspection, investigation, or proceedings of any such body;
(lii)advise the Company fully and immediately upon becoming aware of any regulatory breaches having been committed by the Company, by any Group Company, by you or by another employee or director of the Company or any Group Company; and
(liii)make such notifications or certifications to the Company as the Company requires in order to satisfy its obligations with respect to certain regulatory bodies.
24.aAny breach of the Rules may lead to disciplinary action, including summary dismissal.
24.bYou warrant that :
(liv)you have provided the Company with your full current name and all former names that you had or were known by;
(lv)you have provided the Company with your current address and will inform the Company promptly in writing of any change in your address;
(lvi)you have informed the Company in writing of the names of any and all persons you live with and will promptly inform the Company in writing of any change in those persons;
(lvii)you are conversant with your duties as a director imposed on you by law and regulation;
(lviii)you have not been declared en désastre nor made an arrangement with or for the benefit of your creditors nor are you subject to any saisie, bankruptcy, sequestration or similar proceedings and that if you become subject to any such proceedings, or it becomes reasonably likely that you will become subject to any such proceedings, then you will inform the Company promptly of such fact in writing; and
(lix)no action has been taken against you by any regulatory or professional body, including but not limited to the Jersey Financial Services Commission, or the UK’s Financial Conduct Authority to disqualify you from acting as a director of a company.
25.LIQUIDATED DAMAGES
25.aIf the Employee declines to give the power of attorney referred to in clauses 14.9 and 18.2 (or, once given, revokes such power of attorney without the Company's written consent) then such costs as are reasonably incurred by the Company in taking steps to obtain the benefit of clauses 14 and 18 shall be recoverable by the Company from the Employee as a debt. The parties confirm that such costs will represent a reasonable and proportionate amount by way of liquidated damages to protect the Company's interest in all Employment IPRs and Employment Inventions (enforcing clause 14) or to protect the Company's control over its business and information relating to the business of the Company (enforcing clause 18).
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26.RECONSTRUCTION AND AMALGAMATION
26.aIf the Appointment is terminated at any time by reason of any reconstruction or amalgamation of the Company or any Group Company, whether by winding up or otherwise, and the Employee is offered employment with any concern or undertaking involved in or resulting from such reconstruction or amalgamation on terms which (considered in their entirety) are no less favourable to any material extent than the terms of this agreement, the Employee shall have no claim against the Company or any such undertaking arising out of or connected with such termination.
26.bThere are no contractual provisions in relation to redundancy.
27.NOTICES
27.aAny notice, variations or other notifications given under this agreement shall be in writing and signed by or on behalf of the party giving it and shall be served by delivering it by email to the email address notified by the relevant party to the other party. The parties agree that should they become aware that one of the emails below is no longer valid or no longer in use, or they receive a bounce back / undelivered message, they shall take reasonable steps to obtain a new email address to validly serve the other party. Any such notice shall be deemed to have been received if sent during business hours of the Company that business day, and otherwise the next business day.
27.bIn proving such service it shall be sufficient to prove that the notice was transmitted by email to the email address of the relevant party and that no mail undelivered message was received.
27.cFor the purposes of notice by email the following emails shall be used unless otherwise notified by the other party:
(lx)Company: legal@clarivate.com; and
(lxi)Employee: Gordon.Samson@clarivate.com
28.ENTIRE AGREEMENT
28.aEach party on behalf of itself (and in the case of the Company, as agent for any Group Companies) acknowledges and agrees with the other party (the Company acting on behalf of itself and as agent for each Group Company) that:
(lxii)this agreement together with any documents referred to in it constitutes the entire agreement and understanding between the Employee and the Company and any Group Company and supersedes any previous agreement between them relating to the Appointment (which shall be deemed to have been terminated by mutual consent);
(lxiii)in entering into this agreement neither party has relied on any Pre-Contractual Statement; and
(lxiv)the only remedy available to each party for breach of this agreement shall be for breach of contract under the terms of this agreement and no party shall have any right of action against any other party in respect of any Pre-Contractual Statement.
28.bBy signing this agreement, the Employee and the Company agree that any previous agreements relating to the Employee's employment, including but not limited to an employment agreement dated 15 August 2014 and the terms of a settlement agreement dated 24 December 2020, are expressly revoked and replaced in full by the terms of this agreement.
28.cNothing in this agreement shall, however, operate to limit or exclude any liability for fraud.
29.COLLECTIVE AGREEMENT
29.aThere are no collective agreements relevant to the Employee's employment under this agreement.
30.VARIATION
30.aNo variation of this agreement shall be valid unless it is in writing and signed by or on behalf of each of the parties.
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31.COUNTERPARTS
31.aThis agreement may be signed in any number of counterparts, each of which, when executed and delivered, shall be an original, and all the counterparts together shall constitute one and the same instrument.
32.GOVERNING LAW AND JURISDICTION
32.aThis agreement shall be governed by and construed in accordance with the laws of Jersey.
32.bEach party irrevocably agrees to submit to the exclusive jurisdiction of the courts of Jersey over any claim or matter arising under or in connection with this agreement.
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This document has been signed and takes effect on the date stated at the beginning of it.
/s/ Jerre Stead | ||
Jerre Stead Executive Chairman and Chief Executive Officer For and on behalf of CPA Limited | ||
/s/ Gordon Samson | ||
| Gordon Samson | ||
/s/ Nicola Maynard | ||
Witnessed by Nicola Maynard | ||
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SCHEDULE 1 – POST TERMINATION RESTRICTIONS
NON-COMPETITION AND
NON-SOLICITATION AGREEMENT
THIS NON-COMPETITION AND NON-SOLICITATION AGREEMENT (the “Agreement”) is made this 25th day of May 2022, by and between CPA Limited, a Clarivate company, of Liberation House, St Helier, Jersey, JE1 1BL, (hereinafter referred to as “the Employer” or “CPA”) and Gordon Samson (hereinafter referred to as “the Employee”). This Agreement shall apply to the Employee’s employment with the Employer and any future employment with any of the Employer’s current or future parent or holding companies, subsidiaries, affiliates, successors or assigns.
The Employee has been offered the position of Chief Product Officer, specifically contingent on the Employee signing this Agreement, beginning on the 1st day of February 2022. As cause for such position, the Employee’s continued employment, the Employee’s receipt of salary and other remuneration and benefits associated with that employment, including a grant of both restrictive stock units, or RSUs, and performance stock units, or PSUs, under Clarivate’s equity program with a combined grant date value of USD $2,000,000 (two million dollars) and a grant date of 1 March 2022, and other good and valuable cause, the receipt and sufficiency of which is hereby acknowledged by the parties, the parties agree:
1.Purpose for Non-Competition, Non-Solicitation and Non-Dealing Protections. The Employee agrees that the Employer is engaged in a number of highly competitive businesses. The Employer’s involvement in these businesses has required and continues to require the expenditure of substantial amounts of money and the use of skills developed over long periods of time. As a result of these investments of money, skill and time, the Employer has developed and will continue to develop certain valuable Trade Secrets and Confidential Information that are unique to the Employer’s businesses and the disclosure of which would cause the Employer great and irreparable harm. These investments also give the Employer a competitive advantage over companies that have not made comparable investments and that otherwise have not been as successful as the Employer in developing their businesses. Solely by virtue of the Employee’s employment with the Employer, the Employee became privy to the Employer’s Trade Secrets and Confidential Information, and has become intertwined with the goodwill the Employer has developed, cultivated and maintained within its highly competitive industry and with its customers and prospective customers. It would be unfair for the Employee to exploit the information, specifically including Confidential Information and Trade Secrets, and goodwill the Employee obtained during and as a result of the Employee’s employment by the Employer.
2.Definitions.
1.Confidential Information. For purposes of this Agreement, “Confidential Information” shall mean information that the Employer has obtained in connection with its present or planned business, including information the Employee developed in the performance of the Employee’s duties for the Employer or any Group Company, the disclosure of which could result in a competitive or other disadvantage to the Employer or any Group Company. “Confidential Information” includes some of the Employer’s most valuable assets, such as: innovations, inventions, and ideas including patentable or copyrightable subject matter; pricing policies; business plans and outlooks; brand formulations; nonpublic financial results; new product developments or plans; methodologies, customer lists; author or consultant contracts; subscription lists; software or computer programs; merger, acquisition or divestiture plans; personnel acquisition plans or major management changes; and Trade Secrets (defined below). Confidential Information includes all information received by the Employer under an obligation of confidentiality to another person or entity.
2.Competitive Enterprise. For the purposes of this Agreement, “Competitive Enterprise” shall mean any company, entity, or organization that engages in any business that is similar or substantially similar to the business of the Employer, including any business under development by the Employer as at the date of the termination of the Employee's employment with the Employer, and where the Employee, during the last twelve (12) months immediately before the termination of the Employee’s employment with the Employer was (1) actively involved with such business of the Employer and/or (2) was aware of Confidential Information and/or Trade Secrets concerning such business of the Employer (whether or not the Employee worked in that business directly).
3.Employer. For the purposes of Paragraphs 1 – 14 of this Agreement, "Employer" shall include any Group Company.
4.Group Company. For purposes of this Agreement, “Group Company” or "Group" shall mean any firm, company, corporation, business entity or other organization:
1.which is directly or indirectly controlled by the Employer;
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2.which directly or indirectly controls the Employer;
3.which is a holding body, subsidiary or wholly-owned subsidiary of the Employer as defined by the Companies (Jersey) Law 1991;
4.which is directly or indirectly controlled by a third party who also directly or indirectly controls the Employer; or
5.which is the successor in title or assign of the firms, companies, corporations, business entities or other organizations referred to herein,
and "Group Company" and "Group Companies" shall be construed accordingly. This definition shall expressly include Camelot Holdings (Jersey) Limited and its direct and indirect subsidiaries, or any company that is a successor (including, without limitation, by change of name, dissolution, merger, consolidation, reorganization, sale or other disposition) to any such company, or that becomes a holding body of Camelot Holdings (Jersey) Limited.
5.Trade Secrets. For purposes of this Agreement, “Trade Secrets” shall mean all forms and types of financial information (including pricing), business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing by the Employer. The Employer confirms, and the Employee understands, that the Employer is the owner of its Trade Secrets, that the Employer has taken reasonable steps, under the circumstances, to protect and maintain the secrecy of its Trade Secrets, and that the Employer derives economic value, both tangible and intangible, from its Trade Secrets.
3.Non-Competition. The Employee agrees that during the term of the Employee’s employment with the Employer, and for a period of twelve (12) consecutive months following the termination of the Employee’s employment for any reason, the Employee will not, directly or indirectly, individually or through an entity, as an owner, part owner, partner, employee, agent or otherwise:
1.Provide to a Competitive Enterprise the same or similar services that the Employee performed during the Employee’s employment with the Employer or its predecessors; or
2.Set up, be involved with in any capacity in, or attempt to set up a Competitive Enterprise; or
3.Sell, attempt to sell, or directly or indirectly assist in the effort of anyone else, including an actual or potential Competitive Enterprise, who sells or attempts to sell any products or services that are competitive with any products or services offered by the Employer and for which the Employee gained knowledge of during the Employee’s employment with the Employer; or
4.Act in any capacity for another entity or engage in any conduct if in such capacity or due to such conduct the Employee would be likely to or would inevitably use and/or disclose Confidential Information or Trade Secrets; or
5.Interfere with, disrupt or attempt to interfere with or disrupt relations between the Employer and any of its customers, employees, consultants, suppliers or vendors; or
6.Own more than 5% of a Competitive Enterprise.
The Employee acknowledges that the Employer is involved in a global business and due to the nature of the business, and its Confidential Information and Trade Secrets the use of which could be damaging to the Employer regardless where this information is put to use, it is reasonable and necessary to protect the Employer’s legitimate business interests for the provisions of this Non-Competition paragraph to apply globally.
4.Non-Solicitation of and Non-Dealing with Customers. The Employee agrees that while employed by the Employer, the Employee will have contact with and become aware of some, most or all of the Employer’s customers, representatives of those customers, their names and addresses, specific customer needs and requirements, and leads and references to prospective customers. The Employee further agrees that the loss of such customers will cause the Employer great and irreparable harm. The Employee agrees that for twelve (12) months after the termination of the Employee’s employment for any reason, the Employee will not directly or indirectly solicit, contact, call upon, communicate with or attempt to communicate with, or deal with any customer, former customer, or prospective customer of the Employer for the purpose of providing or obtaining any product or service that is competitive with any product or service then offered by the Employer. This restriction shall apply only to (1) any
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customer, former customer, or prospective customer of the Employer with whom the Employee had contact with during the last twelve (12) months of the Employee’s employment with the Employer or (2) any customer, former customer, or prospective customer of the Employer about which the Employee had access to the Employer’s Confidential Information or Trade Secrets concerning such customer, former customer or prospective customer during the last twelve (12) months of employment with the Employer.
For the purposes of Paragraph 4, “contact” means any material interaction between the Employee and the customer, former customer, or prospective customer which takes place to further a business relationship.
5.Non-Solicitation of Employees. The Employee agrees that while employed by the Employer and for twelve (12) months after the termination of the Employee’s employment with the Employer for any reason, the Employee will not directly or indirectly solicit, recruit, hire or attempt to solicit, recruit, or hire any other employee of the Employer with whom the Employee had contact with during his/her employment with the Employer during the last twelve (12) months of employment with the Employer.
For the purposes of Paragraph 5, “contact” means any material interaction between the Employee and the other employee, in particular but not limited to any other employees that the Employee was directly or indirectly responsible for or supervised.
6.Garden Leave. If the Employer places the Employee on garden leave under the Employee's contract of employment, the period of any of the restrictions specified in clauses 3, 4, and 5 above shall be reduced respectively by the duration of any such period of garden leave.
7.Waiver of Breach. The Employer’s waiver of a breach of any provision of this Agreement by the Employee does not operate as and should not be construed as a waiver of any subsequent breach by the Employee, nor does the Employer’s failure to take action against any other employee for similar breaches operate as a waiver by the Employer of a breach.
8.Reformation and/or Severability. If a court determines that any provision of this Agreement contains an unenforceable restriction, the court is requested and authorized to revise such provision to include the maximum restriction allowed under applicable law. If any provision in this Agreement is determined to be in violation of any law, rule or regulation or otherwise unenforceable, and cannot be modified to be enforceable, such determination shall not affect the validity of any other provision of this Agreement, and such other provisions shall remain in full force and effect. Each provision, paragraph and subparagraph of this Agreement is severable from every other provision, paragraph and subparagraph and constitutes a separate and distinct covenant.
9.Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Employer and its Group Companies and their successors and assigns. The Employer shall have the right to assign, and the Employee hereby consents to the assignment of, this Agreement to a successor to all or substantially all of the business or assets of the Employer or any Group Company without the Employee’s further approval or consent.
10.Injunctive Relief. The Employee understands, acknowledges and agrees that in the event the Employee breaches and/or threatens to breach of any of the covenants and provisions contained in this Agreement, the Employer shall suffer irreparable injury for which there is no adequate remedy at law. The Employer will therefore be entitled to injunctive relief from the courts restraining the Employee from engaging in activities in breach of this Agreement.
11.Notification to Other Parties. If the Employee’s employment terminates for any reason, the Employee agrees to provide a copy of this Agreement, and consents to the Employer providing a copy of this Agreement, to any subsequent employer or potential employer of the Employee, or other interested parties, whilst any of the restrictions are still in place.
12.Entire Agreement and Modification. This Agreement supersedes any and all prior understandings and agreements between the parties concerning these subject matters. This Agreement may not be modified, terminated, waived, altered or amended except in writing, signed by the Employee and a duly authorized officer of the Employer.
13.Choice of Law. The parties agree that this Agreement is to be governed by and construed under the law of the Bailiwick of Jersey without reference to its conflict of law rules and without regard to any rule of any jurisdiction that would result in the application of the law of another jurisdiction. The Employee agrees that the Employer can enforce this Agreement in any court in any jurisdiction covered by the provisions of this Agreement, including Jersey, England and Wales, or any state in the United States of America. The Employer and the Employee further acknowledge and agree that this Agreement is
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intended, among other things, to supplement, as applicable, the customary law of trade secrets and confidentiality, and the duties the Employee owes to the Employer under the customary law, including but not limited to, the duty of loyalty and fidelity, and does not in any way abrogate any of the obligations or duties the Employee otherwise owes to the Employer.
THE EMPLOYEE ACKNOWLEDGES THAT THE EMPLOYEE HAS READ AND UNDERSTANDS THIS AGREEMENT, THAT THE EMPLOYEE HAS HAD THE OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL ABOUT THIS AGREEMENT INCLUDING, BUT NOT LIMITED TO, THE POST-EMPLOYMENT RESTRICTIONS IN THIS AGREEMENT, AND THAT THE EMPLOYEE ENTERS INTO THIS AGREEMENT FREELY AND VOLUNTARILY.
The parties knowingly and voluntarily execute this Agreement as of the date set forth below:
EMPLOYEE
By: /s/ Gordon Samson_________________________ Dated: May 25, 2022
Gordon Samson
EMPLOYER
CPA Limited
By: /s/ Jerre Stead_____________________________ Dated: June 23, 2022
Executive Chairman and Chief Executive Officer
Jerre Stead
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July 6, 2022
Jonathan Gear
[ADDRESS REDACTED]
Dear Jonathan:
Congratulations! I am very pleased to offer you a position on behalf Clarivate. We are very excited to have you join the organization and look forward to your acceptance.
Below are the terms of your offer, which are effective from your start date. This letter sets forth the terms and conditions of your employment with Clarivate. If at any time following your start date you enter into an employment agreement with Clarivate, such employment agreement will expressly supersede and replace this letter in its entirety.
Start Date: July 11, 2022
Position and Title: As of your start date, your title will be Chief Executive Officer-Elect of Clarivate. You will also be appointed to the Board of Directors of Clarivate, effective as of your start date.
As of September 1, 2022, your title will be Chief Executive Officer of Clarivate, and the current Executive Chair and Chief Executive Officer will become the Non-Executive Chair of the Board of Directors.
In both of these roles, you will be an executive officer of Clarivate, as further discussed below.
Manager: As the Chief Executive Officer-Elect of Clarivate, you will report directly and solely to Jerre Stead, Executive Chair and Chief Executive Officer.
As the Chief Executive Officer of Clarivate, you will report directly and solely to the Board of Directors of Clarivate.
Principal Location: As reasonably determined by you.
Annual
Compensation: You will be eligible for the following, less applicable deductions and withholdings:
•$900,000 base salary (payable in accordance with company payroll practices)
•Participation in our Annual Incentive Plan (AIP) with a target award of 150% of earned base salary, with a maximum opportunity of up to 300% of earned base salary. The AIP payment will be subject to terms and conditions of the plan document, including modification of the actual AIP payment based on business and individual performance, and, in the case of your 2022 AIP, prorated to reflect your start date.
•Participation in the annual equity program according to the award design and levels approved by the Human Resources and Compensation Committee of the Board of Directors (the HRCC) at the time of grant. Any share units granted to you will be subject to the terms and conditions of the 2019 Clarivate Incentive Award Plan (or its successor plan) (the “Plan”) and the grant agreement which will be provided to you as soon as administratively practical after any grant is approved. From time to time, as business conditions dictate, Clarivate may revise eligibility and the types of equity provided in the annual equity program, except as follows. For 2022, your annual equity grant will be granted on or around July 15, 2022 and will consist of awards of restricted share units (RSUs) and performance-based
restricted share units (PSUs) with an aggregate grant date value of $6,500,000 and shall be calculated using the closing share price on the day prior to the public announcement of your employment. 50% of this value will be in RSUs that will vest ratably over three years, and 50% will be in PSUs that will vest according to the corporate performance terms of the relevant Plan document and/or grant agreement relevant to other members of senior management. For 2023, Clarivate will target an annual equity grant with an aggregate grant date value of $7,500,000, consisting of awards of RSUs and PSUs. For 2024 and thereafter annual equity award grants shall be established by the Board of Directors of Clarivate in its discretion.
Sign-on
Equity Bonus: On or around July 15, 2022, you will be granted a one-time award of RSUs with an aggregate grant date value of $3,500,000 (the “Sign-On Award”). The share denomination of this award will be calculated using the closing share price on the day prior to the public announcement of your employment. The Sign-on Award will vest as follows: 40% on each of the first and second anniversaries of your start date and 20% on the third anniversary of your start date. Any share units granted to you, including the Sign-On Award, will be subject to the terms and conditions of the Plan and the relevant grant agreement, which will not be inconsistent with this letter and will be provided to you as soon as administratively practical after the grant date. For avoidance of doubt, your Sign-On Award will be in addition to, and not in lieu of, the components of your annual compensation, as described above.
In the event your employment is terminated for Cause within one year after full vesting of the Sign-On Award, you agree to pay Clarivate in cash the after-tax value of any portion of the Sign-on Award that has vested as of your termination date.
For purposes of the repayment obligation described in this Sign-on Equity Bonus section, the cash value of the repayment obligation will be calculated using Clarivate’s share price as of the date the RSUs were granted to you.
If Clarivate commences and prevails in a lawsuit or claim against you to enforce any of the repayment obligations described in this Sign-on Bonus Equity section, in addition to any other available damages and/or remedies, you will be obligated to pay Clarivate all fees and costs (specifically including attorneys’ fees) it incurred in pursuing any such lawsuit and/or claim.
Severance
Benefits: In the event of your termination of employment by Clarivate without Cause or if you terminate your employment with Good Reason, you will be entitled to receive severance pay in in an amount equal to the Severance Benefit (defined below) and the other benefits described in (b) and (c) below.
1.“Severance Benefit” under this Agreement shall be:
◦.A cash lump sum payment equal to:
i.eighteen (18) months of Base Salary; plus
ii.an amount reflecting eighteen (18) months of bonus target under the Annual Incentive Plan assuming the target bonus had been met at 100% all purposes, with such amount to be calculated based on your Base Salary as of the termination of employment.
◦.Notwithstanding the foregoing, if Clarivate terminates your employment without Cause or you terminate your employment with Good Reason, in each case during the twelve (12) month period immediately following a Change in Control (as defined in the
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Executive Severance Plan of Clarivate PLC and Summary Plan Description, Effective June 30, 2021 (the “Executive Severance Plan”)) (such period, the “CIC Period”), then “eighteen (18)” shall be replaced with “twenty-four (24)”, in the above definition of Severance Benefit.
2.Equity and Equity-Based Awards.
◦.Any unvested outstanding awards of RSUs or other service-based equity awards granted under the Plan that would have vested during the period of the Severance Benefit shall vest on an accelerated basis and shall be released in accordance with the Plan and the relevant grant agreement(s) (typically, RSUs are generally released on the 15th of the month following this effective date of termination, so long as this 15th date is not after the date on which the accelerated RSUs would have vested without modification, and the effective date of termination is the 8th day after any required release agreement has been executed and not revoked). Any unvested outstanding awards of PSUs shall remain outstanding and eligible to vest based on the achievement of performance targets applicable to other then-active holders of the PSUs, with any service requirements deemed satisfied as if you had remained employed during the period of the Severance Benefit, with such resulting number PSUs pro-rated based on the period of time between grant and your termination of employment. Notwithstanding the foregoing, if Clarivate terminates your employment without Cause or you terminate your employment with Good Reason, in each case during the CIC Period, any unvested RSUs and PSUs shall immediately vest (with PSUs vesting at such level of performance determined by the Board of Directors of Clarivate or the HRCC).
◦.The Sign-On award shall be immediately vested and released as described above.
3.Other Benefits.
◦.You shall be entitled to lump sum payment equal to the applicable monthly COBRA premium payment for the group medical plan in which you were enrolled as of your termination date, multiplied by eighteen (18) (or, following a Change in Control, twenty-four (24)). This lump sum amount shall be paid as soon as administratively feasible following your termination from employment but, in any event, no later than the two and one-half (2½) months after the end of the year in which the termination from employment occurs
“Cause” means : (i) your unauthorized use or disclosure of confidential information or trade secrets of the Clarivate; (ii) your material breach of a written agreement between you and Clarivate and its subsidiaries, including, without limitation, any employment, confidentiality, non-compete, non-solicit or similar agreement; (iii) your conviction of or entry of a plea of guilty or nolo contendere by you to a felony under the laws of the United States or any state thereof for any crime involving fraud, dishonesty, theft, embezzlement or moral turpitude, or any similar crime in
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any jurisdiction outside of the United States; (iv) your negligence or willful misconduct in the performance of your duties, or your willful or repeated failure or refusal to substantially perform duties reasonably requested or assigned by your supervisor or the Board of Directors of Clarivate; (v) your commission of any act of fraud, embezzlement, material misappropriation or material dishonesty against Clarivate or any of its subsidiaries; or (vi) your malicious or dishonest acts, omissions or statements that Clarivate reasonably determines to be materially detrimental or damaging to the reputation, operations, prospects or business relations of Clarivate or any of its subsidiaries; provided that, to terminate you for Cause, and solely if the applicable grounds giving rise to Cause are susceptible to cure, the Board of Directors of Clarivate must provide you with written notice of such grounds and a period of 30 days in which to cure them, and your termination for Cause will take effect upon the expiration of such cure period solely if you have failed to substantially cure such grounds.
“Good Reason” means the occurrence, without your express written consent, of any of the following circumstances: (i) a material diminution in your title, authorities, duties or responsibilities, (ii) a reduction in your annual base salary or AIP opportunity, or (iii) a material breach by Clarivate of any provision of this letter agreement or (iv) required relocation of your principal place of employment to any Clarivate office without your consent; provided that, to terminate your employment with Good Reason, you must provide the Board of Directors of Clarivate with written notice of the applicable grounds giving rise to Good Reason within 90 days after you first learn of them, Clarivate will have a period of 30 days in which to cure such grounds, and your resignation with Good Reason will take effect upon the expiration of such cure period solely if Clarivate has failed to substantially cure such grounds. For the avoidance of doubt, Good Reason shall include the event that you are not the CEO of the surviving company or parent following a Change in Control.
Capitalized terms in the Severance Benefits section that are not otherwise defined in this offer letter shall have the meaning given to them in the Executive Severance Plan.
Payment of severance and any other benefits described in the Severance Benefits section is contingent upon you entering into a general release and waiver of claims, the terms of which will not require any additional obligations on you greater than provided herein or any post-employment obligations greater than those in the Non-Competition and Non-Solicitation Agreement.
Relocation: You will not be required to relocate to any Clarivate office in connection with the commencement of your employment.
Benefits: You will be eligible to participate in our benefits in accordance with the terms and conditions of the respective plans Clarivate may from time to time provide to its similarly situated employees. An overview of all available benefits is attached for your reference.
Vacation: You will be entitled vacation under Clarivate’s Flex Time Off plan which may be taken at mutually convenient times as agree with your manager. Clarivate may make adjustments or changes to plans and policies from time to time.
Business
Expenses: Business expenses will be reimbursed, subject to proper documentation and in accordance with the policies of Clarivate.
Executive Officer
Role: You will have the duties customarily associated with the role of Chief Executive Officer. Clarivate acknowledges and agrees that you may also serve in capacity as advisor or board member to other not-for-profit and for-profit entities, so long as such service does not involve a conflict of interest or materially interfere with your duties as the chief executive officer of Clarivate and is otherwise consistent with Clarivate’s Corporate Governance Guidelines. As an Executive Officer of Clarivate,
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you will be subject to applicable SEC rules. including Section 16 of the Securities Exchange Act of 1934, which articulates the regulatory filing responsibilities to which certain officers are legally required to adhere. Prior to your start date, you will meet with Julio Martin, our Chief Governance Officer and Chief Securities Counsel, for an overview of these regulations.
Additionally, as an Executive Officer, you will be required to comply with our Share Ownership Guidelines which require you to own shares of Clarivate stock equal to 6 times your base salary by the end of a 5-year compliance period that will start from when you are appointed the Chief Executive Officer of Clarivate.
At Will: You understand that your employment will be “at will”, which means that Clarivate may terminate your employment at any time for any reason, subject to the terms of this letter. This letter does not constitute, and may not be construed as, a commitment for employment for any specific duration.
Representations
and Warranties: You hereby represent and warrant your employment with Clarivate or any of its subsidiaries as set forth herein and your execution and performance of this letter do not constitute a breach or violation of any other agreement, obligation or understanding with any third party. You represent that you are not bound by any agreement or any other existing or previous business relationship which conflicts with, or may conflict with, the performance of your obligations hereunder or prevent the full performance of your duties or obligations hereunder.
Withholding;
Section 409A: Clarivate may deduct and withhold from any amounts payable under this letter such federal, state, local, or other taxes as are required or permitted to be withheld pursuant to any applicable law or regulation, as applicable. It is the intent of the parties that the provisions of this letter either comply with Section 409A of the Internal Revenue Code of 1986 (“Section 409A”) or that one or more elements of compensation or benefits be exempt from Section 409A. Accordingly, the parties intend that this letter be interpreted and operated in a manner consistent with such requirements in order to avoid the application of penalty taxes under Section 409A to the extent reasonably practicable. To the extent that any provision hereof is modified in order to comply with Section 409A, such modification will be made in good faith and will, to the maximum extent reasonably possible, maintain the original intent and economic benefit to you and Clarivate of the applicable provision without violating the provisions of Section 409A. For purposes of Section 409A, your right to receive any installment payments pursuant to this letter will be treated as a right to receive a series of separate and distinct payments. Whenever a payment under this letter specifies a payment period with reference to a number of days, the actual date of payment within the specified period will be within the sole discretion of Clarivate or one of its subsidiaries. Clarivate cannot make any guarantees with respect to compliance with such requirements, and neither Clarivate nor any affiliate will have any obligation to indemnify you or otherwise hold you harmless from any or all of such taxes or penalties. To the extent you are a “specified employee” within the meaning of Section 409A as of the date of the termination of your employment, no amounts payable under this letter or otherwise that constitute deferred compensation within the meaning of Section 409A which is payable on account of your separation from service will be paid to you before the date which the first day of the seventh month after such date of termination of employment (the “Delayed Payment Date”) or, if earlier, the date of your death following such separation from service. All such amounts that would, but for the preceding sentence become payable prior to the Delayed Payment Date, will be accumulated and paid on the Delayed Payment Date.
Successors
and Assigns: This letter will be binding upon and inure to the benefit of Clarivate and any successor to Clarivate, including, any persons acquiring directly or indirectly all or substantially all of the business or assets of Clarivate whether by purchase, merger, consolidation, amalgamation, reorganization or otherwise (and such successor will thereafter be deemed “Clarivate” for the purposes of this letter). This letter will inure to the benefit of and be enforceable by your personal or legal
5
representatives, executors, administrators, successors, heirs, distributees and legatees, but otherwise will not otherwise be assignable, transferable or delegable by you. Except as expressly provided in the immediately preceding sentence, you will not and Clarivate will not, without the prior written consent of the other party, assign, transfer or delegate this Agreement or any of your rights or obligations hereunder (other than to a corporate successor of Clarivate).
Governing Law: This letter will be construed and enforced in accordance with the rules of the laws of the State of Delaware, notwithstanding any state’s choice of law rules to the contrary.
Entire Agreement;
Modification: This offer letter, including but not limited to its at-will employment provision, may not be modified or amended except by a written agreement signed by an officer of Clarivate, acting with the authority of the board of directors of Clarivate, and you. This offer letter and the ancillary agreements referenced herein represents the entire agreement of the parties regarding the subject matter covered hereby. All prior understandings relating to the subject matter of this offer letter, whether oral or written, are hereby superseded by this offer letter other than any documents referenced in this offer letter and/or incorporated herein by reference.
Counterparts: This letter may be executed in one or more counterparts (including via facsimile and electronic image scan (.pdf)), each of which will be deemed to be an original, but all of which together will constitute one and the same instrument and will become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties.
Please be aware that your offer of employment is contingent on your completion of the following:
•Signature on attached agreement relating to your non-compete and/or non-solicit obligations
•Electronic acknowledgement of the Clarivate Code of Conduct
A copy of the Code is attached for your reference. Acknowledgement will be requested after your employment has begun.
•Signature on the attached Confidential Information and Invention Assignment Agreement
•Proof of identity and employment eligibility
You must present original documentation upon hire in order to complete the federal I9 form. If you do not present this information, then Clarivate may not employ you and you will be terminated, as required by law. Additional instructions are attached for your review.
If you find this offer to be acceptable, then please provide your signature and submit within 5 days of the date of this letter.
I believe that you can make a significant contribution to Clarivate and look forward to working with you as we continue to build this very exciting business.
Sincerely,
/s/ Jerre Stead
Jerre Stead
Executive Chairman and Chief Executive Officer
Clarivate
6
The undersigned represents and warrants that s/hewill not utilize or make available to Clarivate any confidential or proprietary information of any third party or violate any obligation(s) with respect to such information.
The undersigned accepts the above employment offer and agrees that the employment offered is “at will” (meaning either party may terminate at any time, with or without cause or notice and, except as otherwise noted in the severance language included in this offer letter, without compensation other than for time worked), that this offer supersedes any and all prior understandings or agreements, whether oral or written, relating to this offer of employment, and that there are no other terms expressed, or implied. The undersigned also understands that compensation, benefits and other terms of employment can change from time to time, as determined in Clarivate’s sole discretion, and nothing stated herein implies a contract of employment or employment for any specific duration.
Accepted: _/s/ Jonathan Gear_________________________
Jonathan Gear
Date: July 7, 2022
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Exhibit 31
CERTIFICATION
I, Jerre Stead, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Clarivate Plc;
2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;
3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and
d) Disclosed in this Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 9, 2022 | /s/ Jerre Stead | ||||
| Jerre Stead | |||||
Executive Chairman and Chief Executive Officer | |||||
CERTIFICATION
I, Jonathan M. Collins, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Clarivate Plc;
2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;
3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and
d) Disclosed in this Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 9, 2022 | /s/ Jonathan M. Collins | ||||
| Jonathan M. Collins | |||||
| Executive Vice President and Chief Financial Officer | |||||
Exhibit 32
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Clarivate Plc (the “Company”) on Form 10-Q for the quarter ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jerre Stead, Executive Chairman and Chief Executive Officer of the Company, certify to my knowledge, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 9, 2022 | /s/ Jerre Stead | ||||
| Jerre Stead | |||||
Executive Chairman and Chief Executive Officer | |||||
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Clarivate Plc (the “Company”) on Form 10-Q for the quarter ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jonathan M. Collins, Executive Vice President and Chief Financial Officer of the Company, certify to my knowledge, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 9, 2022 | /s/ Jonathan M. Collins | ||||
| Jonathan M. Collins | |||||
| Executive Vice President and Chief Financial Officer | |||||
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