Clarivate(US:CLVT)2024-05-08 10:05Part I. Financial Information Item 1. Financial Statements (Unaudited) Clarivate reported a 1.3% revenue decrease and a net loss of $75.0 million for Q1 2024, with total assets and operating cash flow declining Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2024 ($M) | December 31, 2023 ($M) | | :--- | :--- | :--- | | Total Assets | $12,504.7 | $12,706.8 | | Cash and cash equivalents | $361.8 | $370.7 | | Other intangible assets, net | $8,874.2 | $9,006.6 | | Goodwill | $2,023.4 | $2,023.7 | | Total Liabilities | $6,616.3 | $6,714.5 | | Long-term debt | $4,637.9 | $4,721.1 | | Total Shareholders' Equity | $5,888.4 | $5,992.3 | Condensed Consolidated Statements of Operations Q1 2024 Statement of Operations Summary (Unaudited) | Metric (in millions, except per share) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Revenues | $621.2 | $629.1 | | Income (loss) from operations | $5.0 | $54.6 | | Net income (loss) | $(75.0) | $43.5 | | Net income (loss) attributable to ordinary shares | $(93.8) | $24.7 | | Basic EPS | $(0.14) | $0.04 | | Diluted EPS | $(0.14) | $0.04 | Condensed Consolidated Statements of Comprehensive Income (Loss) Q1 2024 Comprehensive Income (Loss) (Unaudited) | Metric (in millions) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net income (loss) | $(75.0) | $43.5 | | Other comprehensive income (loss), net of tax | $(17.0) | $88.4 | | Comprehensive income (loss) | $(92.0) | $131.9 | Condensed Consolidated Statements of Changes in Equity - Total shareholders' equity decreased from $5,992.3 million at the end of 2023 to $5,888.4 million as of March 31, 2024. The decrease was primarily driven by a net loss of $75.0 million and other comprehensive loss of $17.0 million23 Condensed Consolidated Statements of Cash Flows Q1 2024 Cash Flow Summary (Unaudited) | Cash Flow Activity (in millions) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $176.2 | $227.5 | | Net cash used for investing activities | $(64.4) | $(60.4) | | Net cash used for financing activities | $(95.2) | $(151.6) | | Net change in cash | $10.3 | $17.5 | Notes to the Condensed Consolidated Financial Statements - The company operates in three reportable segments: Academia & Government (A&G), Intellectual Property (IP), and Life Sciences & Healthcare (LS&H)54 Revenue by Transaction Type (in millions) | Revenue Type | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Subscription revenues | $403.1 | $393.2 | | Re-occurring revenues | $102.5 | $107.7 | | Transactional and other revenues | $115.6 | $128.2 | | Total Revenues | $621.2 | $629.1 | - In Q2 2023, the company initiated a sale of a small product group within the IP segment, which closed on April 1, 2024. A loss of $15.8 million was recognized in Q1 2024 related to this divestiture58 - In January 2024, the company refinanced its credit facilities, extending debt maturities and lowering annual cash interest costs. This included reducing the revolving credit facility to $700.0 million and refinancing term loans into a new $2,150 million tranche maturing in 20317073 - The company incurred $9.5 million in restructuring costs in Q1 2024, primarily related to the Segment Optimization Program initiated in Q2 202377102 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 1.3% revenue decline to lower IP patent renewals and transactional sales, impacting Adjusted EBITDA and free cash flow, despite ACV growth and stable renewal rates Key Performance Indicators - Annualized Contract Value (ACV) increased by 1.8% to $1,583.3 million as of March 31, 2024, from $1,555.2 million a year prior, primarily due to price increases147 - The annual renewal rate for subscription products was stable at 93% for both the three months ended March 31, 2024, and 2023148 Results of Operations Revenue by Segment (in millions) | Segment | Q1 2024 | Q1 2023 | % Change | Organic % Change | | :--- | :--- | :--- | :--- | :--- | | Academia & Government | $317.7 | $314.7 | 1.0% | 0.6% | | Intellectual Property | $200.9 | $209.1 | (3.9)% | (4.5)% | | Life Sciences & Healthcare | $102.6 | $105.3 | (2.6)% | (2.8)% | | Total Revenues | $621.2 | $629.1 | (1.3)% | (1.7)% | - Cost of revenues decreased by 5.2%, primarily driven by a reduction in share-based compensation expense154 - Other operating expense was $17.6 million, compared to income of $32.0 million in the prior year, driven by a $15.8 million loss on divestiture and the absence of a $49.4 million gain on a legal settlement that occurred in Q1 2023130 - Interest expense decreased by 4.6% to $70.2 million, driven by lower outstanding borrowings from debt prepayments131 Adjusted EBITDA and Adjusted EBITDA margin (non-GAAP measures) Adjusted EBITDA Reconciliation (in millions) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net income (loss) | $(75.0) | $43.5 | | Adjusted EBITDA | $236.3 | $252.7 | | Adjusted EBITDA margin | 38.0% | 40.2% | Liquidity and Capital Resources - As of March 31, 2024, the company had $361.8 million in cash and cash equivalents and $691.5 million of available borrowing capacity under its revolving credit facility182 Free Cash Flow (non-GAAP measure, in millions) | Component | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $176.2 | $227.5 | | Capital expenditures | $(64.4) | $(59.3) | | Free cash flow | $111.8 | $168.2 | - The decrease in free cash flow was driven by lower operating cash flows and increased capital expenditures for product and content development163 Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes in its market risks, including foreign currency exchange rate and interest rate risks, from those disclosed in its 2023 annual report on Form 10-K - Market risks as of March 31, 2024, have not materially changed from those discussed in the annual report for the year ended December 31, 2023168 Controls and Procedures Management concluded that as of March 31, 2024, the company's disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting. This weakness relates to the design and maintenance of controls for preparing and reviewing footnote disclosures. Remediation efforts began in Q4 2023 and are ongoing - The CEO and CFO concluded that disclosure controls and procedures were not effective as of March 31, 2024, due to a material weakness189 - A material weakness was identified related to ineffective controls over the preparation and review of footnote disclosures, which resulted in immaterial misstatements in prior periods190 - The company has designed and implemented new control activities to address the weakness, but they have not yet operated long enough to be considered fully remediated190191 Part II. Other Information Legal Proceedings The company is vigorously defending against ongoing securities class action lawsuits alleging internal control weaknesses and misleading statements, with potential loss currently inestimable - The company is defending against consolidated securities class action complaints alleging failure to disclose weaknesses in internal controls and making misleading statements related to product quality and organic growth141 - Defendants' motions to dismiss the amended complaint are currently pending. The company believes the claims are without merit and is unable to estimate a reasonably possible loss141 Risk Factors There have been no material changes to the risk factors associated with the company's business since the filing of its annual report on Form 10-K for the year ended December 31, 2023 - No material changes to risk factors were reported from those in the most recent annual report on Form 10-K171 Unregistered Sales of Equity Securities and Use of Proceeds Clarivate did not repurchase shares in Q1 2024, but withheld 1,185,129 shares for employee tax obligations, with $400 million remaining for repurchases - No shares were purchased as part of the publicly announced repurchase program in Q1 2024172199 - Approximately $400.0 million remained available for share repurchases under the program as of March 31, 2024199 Other Information William Graff was promoted to EVP and CIO on April 1, 2024, becoming a Section 16 officer with an existing Rule 10b5-1 trading plan - William Graff was promoted to EVP and CIO on April 1, 2024, becoming a Section 16 officer. He has an existing Rule 10b5-1 trading plan for up to 25,000 ordinary shares, which terminates by May 31, 2024199 Exhibits This section lists exhibits filed with the Form 10-Q, including incentive plans, employment agreements, and CEO/CFO certifications - The report includes filed exhibits such as incentive award plan documents, employment agreements, and CEO/CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906201