Clarivate Reports Third Quarter 2023 Results

— Reaffirms 2023 Outlook —

LONDON, Nov. 7, 2023 /PRNewswire/ -- Clarivate Plc - (NYSE: CLVT) (the "Company" or "Clarivate"), a global leader in connecting people and organizations to intelligence they can trust to transform their world, today reported results for the third quarter.

Third Quarter 2023 Financial Highlights

• Revenues of $647.2 million increased 1.8%, and decreased 1.3% at constant currency(2)
• Organic revenues increased 1.7% driven by an increase in transactional and other revenues of 3.5%, subscription revenues of 1.3% and re-occurring revenues of 0.5%
• Net loss attributable to ordinary shares of $6.6 million; Net loss per diluted share of $0.01
• Adjusted Net Income(1) of $152.6 million increased 6.2%; Adjusted Income per diluted share(1) of $0.21 increased 5.0% or $0.01
• Adjusted EBITDA(1) of $281.4 million increased 3.6% driven by cost savings from integration programs; Adjusted EBITDA Margin(1) of 43.5% increased 80 basis points
• Net cash provided by operating activities decreased $44.4 million to $163.4 million; Free cash flow(1) decreased $38.7 million to $101.7 million, driven by timing-related, in quarter working capital requirements

Nine Months Ended September 30, 2023 Financial Highlights

• Revenues of $1,945.1 million decreased 2.0%, and 2.6% at constant currency(2), driven primarily by the divestiture of MarkMonitor in October 2022, for which there were no comparable amounts in the current year period
• Organic revenues increased 0.3% as an increase in subscription revenues of 2.3% was offset by a decline in re-occurring revenues of 1.0% and transactional and other revenues of 4.3%
• Net loss attributable to ordinary shares of $123.6 million; Net loss per diluted share of $0.18
• Adjusted Net Income(1) of $435.7 million decreased 6.1%; Adjusted Income per diluted share(1) of $0.59 decreased 6.3% or $0.04
• Adjusted EBITDA(1) of $819.0 million increased 1.3% driven by cost savings from integration programs; Adjusted EBITDA Margin(1) of 42.1% increased 140 basis points
• Net cash provided by operating activities increased $180.9 million to $553.3 million; Free cash flow(1) increased $158.8 million to $374.7 million

"Our improved third quarter performance was driven by organic growth from our Academia & Government and Life Sciences & Healthcare (LS&H) segments, each delivering their highest quarterly revenue growth rate over the past year," said Jonathan Gear, Chief Executive Officer. "During the quarter, we secured new customer wins across all three of our segments and launched new product offerings including an AI-powered tool to simplify IP budgets and forecasts and an enhanced search platform within LS&H powered by generative artificial intelligence. We continue to drive operational improvements and innovation, which will benefit both our customers and Clarivate in the future."

Selected Financial Information

The prior year results include MarkMonitor, which was divested on October 31, 2022, for which there are no comparable amounts in the current year periods.

Third Quarter 2023 Commentary

Subscription revenues for the third quarter decreased $0.2 million, or 0.0%, to $408.1 million, and decreased 3.2% on a constant currency basis(2), due to the divestiture of MarkMonitor. Organic subscription revenues increased 1.3%, primarily due to price increases and the benefit of net installations.

Re-occurring revenues for the third quarter increased $4.1 million, or 4.0% to $106.8 million, and increased 0.5% on a constant currency basis(2). Organic re-occurring revenues increased 0.5%, due to increased patent renewal volumes.

Transactional and other revenues for the third quarter increased $7.3 million, or 5.8%, to $132.3 million, and increased 3.1% on a constant currency basis(2). Organic transactional and other revenues increased 3.5%, due to higher transactional sales in the Academia & Government and Life Sciences & Healthcare segments.

Balance Sheet and Cash Flow

As of September 30, 2023, cash and cash equivalents of $398.9 million increased $50.1 million compared to December 31, 2022 due to lower one-time costs as ProQuest cost synergies have been completed.

The Company's total debt outstanding as of September 30, 2023 was $4,920.5 million, a decrease of $150.8 million compared to December 31, 2022 due to $150.0 million accelerated debt prepayments on our term loan.

Net cash provided by operating activities of $553.3 million for the nine months ended September 30, 2023 increased $180.9 million compared to $372.4 million for the prior year, primarily due to the prior year employee payroll payments related to the CPA Global Equity Plan and working capital improvements. Free cash flow(1) for the nine months ended September 30, 2023, was $374.7 million, an increase of $158.8 million compared to the prior year period.

Reaffirmed Outlook for 2023 (forward-looking statement)

"We reaffirmed our 2023 outlook as our third quarter results were in-line with our expectations," said Jonathan Collins, Executive Vice President and Chief Financial Officer. "We continue to execute a disciplined allocation of our capital by repurchasing $100 million of ordinary shares in the third quarter and anticipate utilizing about $150 million of cash to prepay debt in the fourth quarter."

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

Conference Call and Webcast

Clarivate will host a conference call and webcast today to review the results for the third quarter at 9:00 a.m. Eastern Time. The conference call will be simultaneously webcast on the Investor Relations section of the Company's website.

Interested parties may access the live audio broadcast by dialing +1 404-975-4839 or toll-free +1 833-470-1428 (in North America) and 44 208 068 2558 or toll free 44 808 189 6484 (internationally). The conference ID number is 677201. To join the webcast please visit https://events.q4inc.com/attendee/182614049. A replay will also be available on https://ir.clarivate.com.

Use of Non-GAAP Financial Measures

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

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

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

Forward-Looking Statements

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

About Clarivate

Clarivate™ is a leading global information services provider. We connect people and organizations to intelligence they can trust to transform their perspective, their work and our world. Our subscription and technology-based solutions are coupled with deep domain expertise and cover the areas of Academia & Government, Intellectual Property and Life Sciences & Healthcare. For more information, please visit clarivate.com.

Supplemental Revenues Information
(Amounts in tables may not sum due to rounding)

Annualized Contract Value ("ACV") 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. We calculate ACV on a constant currency basis to exclude the effect of foreign currency fluctuations. The following table presents our Annualized Contract Value ("ACV") as of the periods indicated.

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

The following table presents our revenues by segment for the periods indicated, as well as the drivers of the variances between periods, including as a percentage of such revenues.

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

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA represents Net income (loss) before the provision for income taxes, depreciation and amortization, and interest expense adjusted to exclude acquisition and disposal-related transaction costs, losses on extinguishment of debt, share-based compensation, unrealized foreign currency remeasurement, 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, impairments, and other items that are included in net income (loss) 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.

The following table presents our calculation of Adjusted EBITDA and Adjusted EBITDA Margin for the three and nine months ended September 30, 2023 and 2022 and reconciles these measures to our Net income (loss) for the same periods:

Adjusted Net Income and Adjusted Diluted EPS

Adjusted Net Income is calculated using Net income (loss), adjusted to exclude acquisition or disposal-related transaction costs (such costs include net income from continuing operations before the provision for income taxes, depreciation and amortization, and interest income and expense from the divested business), amortization related to acquired intangible assets, share-based compensation, mandatory convertible preferred share dividend expense, unrealized foreign currency remeasurement, transformational and restructuring expenses, acquisition-related adjustments to deferred revenues prior to the adoption of FASB ASU No. 2021-08 in 2021, the impact of certain non-cash mark-to-market adjustments on financial instruments, legal settlements, impairments, and other items that are included in net income (loss) for the period that the Company does not consider indicative of its ongoing operating performance and certain unusual items impacting results in a particular period, and the income tax impact of any adjustments.

We calculate Adjusted Diluted EPS by using Adjusted Net Income divided by Adjusted diluted weighted average shares for the period. The Adjusted diluted weighted average shares assumes that all instruments in the calculation are dilutive.

The following table presents our calculation of Adjusted Net Income and Adjusted Diluted EPS for the three and nine months ended September 30, 2023 and 2022 and reconciles these measures to our Net income (loss) and EPS for the same periods:

Free Cash Flow

Free cash flow is calculated using net cash provided by operating activities less capital expenditures. The following table reconciles our non-GAAP free cash flow measure to Net cash provided by operating activities:

Required Reported Data

Standalone Adjusted EBITDA

We are required to report Standalone Adjusted EBITDA, which is identical to Consolidated EBITDA and EBITDA as such terms are defined under our credit facilities, dated as of October 31, 2019, and the indentures governing our secured notes due 2026 issued by Camelot Finance S.A. and guaranteed by certain of our subsidiaries, and the indentures governing the secured and unsecured notes issued by Clarivate Science Holdings Corporation in August 2021, respectively. In addition, the credit facilities and the indentures contain certain restrictive covenants that govern debt incurrence and the making of restricted payments, among other matters. These restrictive covenants utilize Standalone Adjusted EBITDA as a primary component of the compliance metric governing our ability to undertake certain actions otherwise proscribed by such covenants. Standalone Adjusted EBITDA reflects further adjustments to Adjusted EBITDA for cost savings already implemented.

Because Standalone Adjusted EBITDA is required pursuant to the terms of the reporting covenants under the credit facilities and the indentures and because this metric is relevant to lenders and noteholders, management considers Standalone Adjusted EBITDA to be relevant to the operation of its business.

Standalone Adjusted EBITDA is calculated under the credit facilities and the indentures by using our Consolidated Net income (loss) for the trailing 12-month period (defined in the credit facilities and the indentures as our U.S. GAAP net income adjusted for certain items specified in the credit facilities and the indentures) adjusted for items including: taxes, interest expense, depreciation and amortization, non-cash charges, including impairments, expenses related to capital markets transactions, acquisitions and dispositions, restructuring and business optimization charges and expenses, consulting and advisory fees, run-rate cost savings to be realized as a result of actions taken or to be taken in connection with an acquisition, disposition, restructuring or cost savings or similar initiatives, "run rate" expected cost savings, operating expense reductions, restructuring charges and expenses and synergies related to the transition projected by us, costs related to any management or equity stock plan, other adjustments that were presented in the offering memorandum used in connection with the issuance of the secured notes due in 2026, and earnout obligations incurred in connection with an acquisition or investment.

The following table bridges Net loss to Adjusted EBITDA to Standalone Adjusted EBITDA, as Adjusted EBITDA reflects a substantial portion of the adjustments that comprise Standalone Adjusted EBITDA for the period presented:

The foregoing adjustment (5) is an estimate and is not intended to represent a pro forma adjustment presented within the guidance of Article 11 of Regulation S-X. Although we believe the estimate is reasonable, actual results may differ from the estimate, and any difference may be material. See "Forward-Looking Statements."

The following table presents our calculation of Adjusted EBITDA and Adjusted EBITDA Margin for the 2023 outlook and reconciles these measures to our Net loss for the same period:

The following table presents our calculation of Adjusted Diluted EPS for the 2023 outlook and reconciles this measure to our Net loss per share for the same period:

The following table presents our calculation of Free cash flow for the 2023 outlook and reconciles this measure to our Net cash provided by operating activities for the same period:

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SOURCE Clarivate Plc