# CLARIVATE PLC (CLVT) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from CLARIVATE PLC's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1764046/000176404624000016/clvt-20231231.htm
Accession: 0001764046-24-000016
Filing date: 2024-02-27
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/CLVT/
All MD&A years: /company/CLVT/mda/
Previous year: /company/CLVT/mda/fy2022/ (FY 2022)
Next year: /company/CLVT/mda/fy2024/ (FY 2024)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with our Consolidated Financial Statements, including the notes thereto, included elsewhere in this annual report. Certain statements in this section are forward-looking statements as described in the Cautionary Note Regarding Forward-Looking Statements of this annual report. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is outlined under Item 1A. Risk Factors of this annual report.

Overview

We are a leading global information services provider. We connect people and organizations to intelligence they can trust to transform their world. We bring together enriched data, analytics and insights, workflow software, and expert services, grounded in deep domain expertise across the spectrum of knowledge, research, and innovation. Our subscription and technology-based solutions cover the Academia & Government (“A&G”), Intellectual Property (“IP”), and Life Sciences & Healthcare (“LS&H”) markets.

For further information about our business, customers, segments, and people, see Item 1. Business included in Part I of this annual report.

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. Organic revenue growth, Annualized Contract Value, Annual Renewal Rates, Adjusted EBITDA, Adjusted EBITDA margin, and Free Cash Flow are key performance indicators because they are a basis upon which 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, and 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 may be useful to investors for the same reasons described above, these measures are not a substitute for GAAP financial measures or disclosures. Reconciliations of our non-GAAP measures to the corresponding most closely related measures calculated in accordance with GAAP are provided further below.

Organic revenue growth

We review year-over-year organic revenue growth in our segments as a key measure of our success in addressing customer needs. We also review year-over-year organic 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 changes and revenue trends by region. We measure organic revenue growth excluding acquisitions, disposals, and foreign currency impacts. We define these components as follows:

•Organic: Revenue generated from pricing, up-selling, securing new customers, sales of new or enhanced product offerings, and any other revenue change drivers except for changes from acquisitions, disposals, and foreign currency.

•Acquisitions: Revenue generated from acquired products and services from the date of acquisition to the first anniversary date of that acquisition.

•Disposals: Revenue generated in the prior year comparative period from product lines, services, and/or businesses divested from the date of the sale in the current period presented or included within a disposal group.

•Foreign Currency (“FX”): The difference between current revenue at current exchange rates and current revenue at the corresponding prior period exchange rates.

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 license agreements with our customers, assuming that all expiring license agreements during that period

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

(In millions, except option prices, ratios or as noted)

are renewed at their current price level. The renewal period for our subscriptions generally starts 90 days before the end of the current subscription period. Our calculation of ACV includes the impact of downgrades, upgrades, price increases, and cancellations during the reporting period.

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 from subscription-based license agreements. Actual subscription revenues that we recognize during any 12-month period are likely to differ from ACV at the beginning of that period, sometimes significantly. This may occur for various reasons, including subsequent changes in annual renewal rates, impacts of price increases (or decreases), cancellations, upgrades and downgrades, and acquisitions and divestitures. 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 following table presents our ACV as of the dates indicated:

[[GREPCENT_TABLE]]
[["","December 31,","","Change"],["","2023","","2022","","2021","","2023 vs. 2022(1)","","2022 vs. 2021(2)"],["Annualized Contract Value","$","1,591.9","","","$","1,581.9","","","$","1,611.8","","","0.6","%","","(1.9)","%"],["(1) The change in ACV was primarily from organic ACV growth of 2.6% attributed to the impact of price increases, offset by changes in FX rates."],["(2) The change in ACV is primarily due to the disposition of MarkMonitor in October 2022, supplemented by organic ACV growth of 2.6%."]]
[[/GREPCENT_TABLE]]

Annual 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 renewal rate” is the metric we use to determine renewal levels by existing customers across 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 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 reporting period, are excluded from both the numerator and denominator of the calculation. We calculate the annual renewal rate to reflect the impact of product downgrades but not the impact 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 renewal rates. Our annual renewal rates were 92%, 91%, and 91% for the years ended December 31, 2023, 2022, and 2021, respectively.

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. Adjusted EBITDA represents Net income (loss) before the Provision (benefit) for income taxes, Depreciation and amortization, and Interest expense, net, adjusted to exclude acquisition and/or disposal-related transaction costs, share-based compensation, mandatory convertible preferred share dividend expense, unrealized foreign currency gains/losses, restructuring expenses, non-operating income and/or expense, the impact of certain non-cash fair value adjustments on financial instruments, legal settlements, impairments, and other items that are included in Net income (loss) for the period that we do not consider indicative of our ongoing operating performance. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by Revenues, net.

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.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

(In millions, except option prices, ratios or as noted)

Free Cash Flow

We use Free Cash Flow in our operational and financial decision-making and believe Free Cash Flow is useful to investors because similar measures are frequently used by securities analysts, investors, ratings agencies, and other interested parties to measure the ability of a company to service its debt. Our presentation of Free Cash Flow should not be construed as a measure of liquidity or discretionary cash available to us to fund our cash needs, including investing in the growth of our business and meeting our obligations.

We define Free Cash Flow as Net cash provided by (used for) operating activities less Capital expenditures. For further discussion on free cash flow, including a reconciliation to cash flows provided by (used for) operating activities, refer to Liquidity and Capital Resources - Cash Flows below.

Critical Accounting Policies and Estimates

The preparation of the consolidated financial statements in accordance with GAAP requires management to make significant judgments and estimates that affect the amounts reported in the consolidated financial statements. We base our estimates on historical experience and various other assumptions that we believe are reasonable under the circumstances, and we review these estimates on an ongoing basis. We consider the following accounting policies and associated estimates to be critical to understanding our financial statements because the application of these policies requires management’s subjective or complex judgments about the effects of matters that are inherently uncertain. These significant judgments could have a material impact on our financial statements if actual performance should differ from historical experience or from our initial estimates, or if our assumptions were to change. For further information about our significant accounting policies, including the policies discussed below, see Note 1 - Nature of Operations and Summary of Significant Accounting Policies included in Part II, Item 8 of this annual report.

Revenue Recognition

Most of our products and services are provided under agreements containing standard terms and conditions. The majority of our revenue is derived from subscription arrangements, which generally are initially deferred and then recognized ratably over the contract term. These arrangements typically do not require any significant judgments or estimates about when revenue should be recognized.

A limited number of re-occurring and transaction agreements contain multiple performance obligations. We apply judgment in identifying the separate performance obligations to be delivered under the arrangement and allocating the transaction price based on the estimated standalone selling price of each performance obligation.

Business Combinations

We apply the acquisition method of accounting to our business combinations. Substantially all of the assets acquired, liabilities assumed, and contingent consideration are allocated based on their estimated fair values, which requires significant management judgment. Our estimates of fair value are based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable. We estimate the fair value of customer relationships intangible assets through a discounted cash flow (“DCF”) model using the multi-period excess earnings method, which involves the use of significant estimates and assumptions related to projected revenue growth rates, EBITDA margins, projected cash flows, royalty rates, tax rates, discount rates, tax amortization benefits, and customer attrition rates, among other items. We estimate the fair value of technology, databases, and trade name intangible assets through a DCF model using the relief-from-royalty method, which involves the use of significant estimates and assumptions related to projected revenue growth rates, royalty rates, tax rates, discount rates, tax amortization benefits, and obsolescence rates. Significant estimates and assumptions used in determining the fair value of intangible assets may change during the finalization of the purchase price allocation as additional information about assets at the date of acquisition becomes available; as a result, we may make adjustments to the initial provisional amounts recorded for intangible assets acquired in the year following acquisition.

When a business combination involves contingent consideration, we record a liability for the estimated cost of such contingencies when expenditures are probable and reasonably estimable. A significant amount of judgment is required to estimate and quantify the potential liability in these matters. We engage outside experts as deemed necessary or appropriate to assist in the calculation of the liability; however, management is responsible for evaluating the estimate. We reassess the estimated fair value of the contingent consideration at the end of each quarter and record any changes in value as necessary.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

(In millions, except option prices, ratios or as noted)

Goodwill and Indefinite-Lived Intangible Assets

Goodwill

We perform goodwill impairment testing during the fourth quarter of each year, or more frequently if events or changes in circumstances indicate that carrying value may not be recoverable. In assessing whether a potential impairment event has occurred, we evaluate various factors, many of which are subjective and require significant judgment. Examples of such factors include significant negative industry or economic trends, persistent declines in our market value, significant changes in regulatory requirements or the legal environment, and segment changes.

We estimate the fair value of a reporting unit using a DCF model. Our DCF model relies significantly on our internal forecasts of future cash flows and long-term growth rates. Significant judgments and estimates made in this analysis include projected revenue growth rates and EBITDA margins, tax rates, terminal values, and discount rates. Changes in these estimates and assumptions could materially affect the determination of estimated fair value and we could be required to record additional impairment charges.

In 2023, we performed our annual goodwill impairment assessment in the fourth quarter using a quantitative approach. The annual assessment coincided with a change in our reporting units wherein the legacy ProQuest and Web of Science Group reporting units were combined into a single reporting unit, A&G. The goodwill impairment assessment included an analysis of the impacted reporting units immediately before and immediately after the change and concluded there was no impairment in either scenario. Based on the quantitative analysis, we determined that the carrying value of the IP and LS&H segment reporting units exceeded their respective fair values, resulting in a goodwill impairment charge of $844.7. The impairment charge recorded for the IP reporting unit represented a total write-off of the associated goodwill. The impairments were primarily due to worsening macroeconomic and market conditions.

In completing the annual quantitative goodwill impairment assessment, we used weighted average cost of capital (“WACC”) discount rate assumptions of 9.5%, 10%, and 11% for the A&G, LS&H, and IP reporting units, respectively. The discount rates were derived using a capital asset pricing model and analyzing published rates for industries relevant to each reporting unit to estimate the cost of equity financing. We used discount rates we believe to be commensurate with the risks and uncertainty inherent in the respective reporting units and in our internally developed forecasts. The use of a different set of assumptions and estimates could have resulted in materially different results. For our LS&H reporting unit, a 50 basis point increase in the discount rate would result in an incremental impairment charge of less than $90.0.

In September 2022, we performed a quantitative goodwill impairment test that resulted in a goodwill impairment charge of $4,407.9 across three of our four reporting units at the time; the impairment charge resulted in a full goodwill write-off for two of the four reporting units. Similar to our 2023 analysis, our 2022 analysis utilized discount rates derived from a capital asset pricing model and an analysis of published rates for industries relevant to each reporting unit. For those reporting units whose estimated fair values exceeded their carrying values, we applied a hypothetical sensitivity analysis by increasing the discount rate by 100 basis points and, in a separate test, by reducing the fair value of those reporting units by 10%. As a result of either scenario, the IP reporting unit’s fair value was approximately equal to its carrying value. All other reporting units evaluated under either scenario reflected fair values well in excess of carrying values by at least 40%. We subsequently performed our annual goodwill impairment test by applying a qualitative assessment, in which we considered factors such as those described above, as well as the historical significant level of headroom. We did not identify any additional impairment charge requirements as a result of the annual test performed in the fourth quarter of 2022.

If any of our DCF assumptions or estimates fall short of our projections, we could experience additional impairment events in the future.

Indefinite-Lived Intangible Assets

Our indefinite-lived intangible assets consist of purchased brand trade names. In 2023 and 2022, we used a qualitative assessment to evaluate events and circumstances that might impact the value of each trade name. In 2021, we performed a quantitative assessment using the relief-from-royalty method that indicated that the fair value of our trade names was significantly in excess of carrying value. We did not identify any impairments of our indefinite-lived intangible assets in 2023, 2022, or 2021.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

(In millions, except option prices, ratios or as noted)

Long-Lived Assets (including Other Intangible Assets)

We evaluate long-lived assets, including property and equipment, definite-lived intangible assets, and right-of-use lease assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Upon such an occurrence, we assess recoverability by comparing the carrying amount of the asset to our estimate of the future undiscounted cash flows expected to be generated by the asset over its remaining life. We exercise judgment in selecting the appropriate assumptions to use in the estimated future undiscounted cash flows analysis. If the carrying amount of the asset exceeds its estimated future cash flows, we recognize an impairment charge equal to the amount by which the carrying amount of the asset exceeds its fair value.

Share-Based Compensation

Share-based compensation expense includes cost associated with stock options, restricted share units (“RSUs”) and performance share units (“PSUs”) granted to certain key members of management.

The share-based compensation cost of time-based RSU and PSU grants is calculated by multiplying the grant date fair value by the number of shares granted. We engage a third-party valuation expert to perform a Monte Carlo simulation that estimates the grant date fair value for PSUs that have a market-based modifier component. We recognize compensation expense over the vesting period of the award on a graded-scale basis, and we recognize forfeitures as they occur. Each quarter, we estimate the number of shares that are expected to vest and adjust our expense accordingly.

Income Taxes

We recognize income taxes under the asset and liability method. Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect our best assessment of estimated current and future taxes to be paid. Significant judgments and estimates are required in determining the consolidated income tax expense for financial statement purposes. In assessing the realizability of deferred tax assets, we consider all available positive and negative evidence factors. Evidence considered includes historical and projected future taxable income by tax jurisdiction, character and timing of income or loss, and prudent and feasible tax planning strategies. We record a valuation allowance to reduce our deferred tax assets to an amount that is more likely than not to be realized. Unforeseen future events, such as changes in market conditions and changes in tax laws, could have a material impact on the realizability of deferred tax assets.

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations. We record tax benefits when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits of the position. Because of the complexity of some of these uncertainties, the ultimate resolution of our uncertain tax positions may result in a payment that is materially different from our current estimates. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.

Recently Issued Accounting Pronouncements

We do not believe that any recently issued accounting pronouncements will have a material impact on our financial condition or results of operations. For additional information related to recently issued and adopted accounting pronouncements, see Note 1 - Nature of Operations and Summary of Significant Accounting Policies included in Part II, Item 8 of this annual report.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

(In millions, except option prices, ratios or as noted)

Results of Operations

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","% Change"],["(in millions)","2023","","2022","","2021","","23 vs \u201922","","22 vs \u201921"],["Revenues, net","$","2,628.8","","","$","2,659.8","","","$","1,876.9","","","(1)%","","42%"],["Operating expenses:"],["Cost of revenues","906.4","","","954.0","","","626.1","","","(5)%","","52%"],["Selling, general and administrative costs","739.7","","","729.9","","","643.0","","","1%","","14%"],["Depreciation and amortization","708.3","","","710.5","","","537.8","","","\u2014%","","32%"],["Goodwill and intangible asset impairments","979.9","","","4,449.1","","","\u2014","","","(78)%","","N/M"],["Restructuring and other impairments","40.0","","","66.7","","","129.5","","","(40)%","","(48)%"],["Other operating expense (income), net","(10.8)","","","(324.8)","","","27.5","","","(97)%","","N/M"],["Total operating expenses","3,363.5","","","6,585.4","","","1,963.9"],["Income (loss) from operations","(734.7)","","","(3,925.6)","","","(87.0)"],["Fair value adjustment of warrants","(15.9)","","","(206.8)","","","(81.3)","","","(92)%","","N/M"],["Interest expense, net","293.7","","","270.3","","","252.5","","","9%","","7%"],["Income (loss) before income tax","(1,012.5)","","","(3,989.1)","","","(258.2)"],["Provision (benefit) for income taxes","(101.3)","","","(28.9)","","","12.3","","","N/M","","N/M"],["Net income (loss)","(911.2)","","","(3,960.2)","","","(270.5)"],["Dividends on preferred shares","75.4","","","75.4","","","41.5","","","\u2014%","","82%"],["Net income (loss) attributable to ordinary shares","$","(986.6)","","","$","(4,035.6)","","","$","(312.0)"],["N/M - Represents a change approximately equal or in excess of 100% or not meaningful."]]
[[/GREPCENT_TABLE]]

As discussed below and in the notes to the financial statements, the following factors had a significant impact on the comparability of our results of operations between the periods presented and may affect the comparability of our results of operations in future periods:

•In 2022 and 2023, we recognized substantial goodwill impairments.

•On October 31, 2022, we completed the sale of the MarkMonitor Domain Management business within our IP segment.

•On December 1, 2021, we completed the acquisition of ProQuest, reported primarily within our A&G segment.

•In 2021, we completed public equity and debt offerings.

•In 2021 and 2022, we implemented a number of restructuring programs to integrate acquisitions and to simplify and optimize operations.

Revenues, net

The tables below present the changes in revenues by transaction type, segment, and by geographic region, as well as the components driving the changes between periods.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

(In millions, except option prices, ratios or as noted)

Revenues by transaction type

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Change","% of Change"],["","2023","","2022","","$","%","Acquisitions","Disposals","FX","Organic"],["Subscription revenues","$","1,618.1","","","$","1,618.8","","","$","(0.7)","","\u2014","%","\u2014","%","(3.7)","%","1.3","%","2.4","%"],["Re-occurring revenues","444.6","","","441.9","","","2.7","","0.6","%","\u2014","%","\u2014","%","0.4","%","0.2","%"],["Transactional and other revenues","566.1","","","599.1","","","(33.0)","","(5.5)","%","\u2014","%","(0.7)","%","0.6","%","(5.4)","%"],["Revenues, net","$","2,628.8","","","$","2,659.8","","","$","(31.0)","","(1.2)","%","\u2014","%","(2.4)","%","0.9","%","0.3","%"],["","2022","","2021","","$","%","Acquisitions","Disposals","FX","Organic"],["Subscription revenues","$","1,618.8","","","$","1,030.4","","","$","588.4","","57.1","%","59.7","%","(1.1)","%","(4.9)","%","3.4","%"],["Re-occurring revenues","441.9","","","453.2","","","(11.3)","","(2.5)","%","\u2014","%","\u2014","%","(7.7)","%","5.2","%"],["Transactional and other revenues","599.1","","","393.3","","","205.8","","52.3","%","58.3","%","(0.2)","%","(3.1)","%","(2.7)","%"],["Revenues, net","$","2,659.8","","","$","1,876.9","","","$","782.9","","41.7","%","45.0","%","(0.7)","%","(5.2)","%","2.6","%"]]
[[/GREPCENT_TABLE]]

2023 vs. 2022

Subscription revenues decreased primarily due to the divestiture of the MarkMonitor business partially offset by organic growth driven by price increases, reflecting a trend consistent with the increase in our ACV between periods, and an FX benefit. Transactional and other revenues decreased primarily due to lower LS&H real world data sales and IP trademarks transactional volumes and patent search & analytics revenue.

2022 vs. 2021

Subscription revenues increased primarily due to the acquisition of ProQuest, further supplemented by organic growth driven by price increases and the benefit of net installations, reflecting a trend consistent with the increase in our ACV between periods. Re-occurring revenues decreased due to FX headwinds, partially offset by strong organic growth driven by increases in patent renewal volumes and improvements in yield per case. Transactional and other revenues increased due to the acquisition of ProQuest, partially offset by FX headwinds and lower trademark transactional volumes and patent filing revenue.

Revenues by segment

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Change","% of Change"],["","2023","","2022","","$","%","Acquisitions","Disposals","FX","Organic"],["Academia & Government","$","1,323.3","","","$","1,280.1","","","$","43.2","","3.4","%","\u2014","%","\u2014","%","1.2","%","2.2","%"],["Intellectual Property","862.7","","","927.1","","","(64.4)","","(6.9)","%","\u2014","%","(6.9)","%","0.7","%","(0.7)","%"],["Life Sciences & Healthcare","442.8","","","452.6","","","(9.8)","","(2.2)","%","\u2014","%","\u2014","%","1.0","%","(3.2)","%"],["Revenues, net","$","2,628.8","","","$","2,659.8","","","$","(31.0)","","(1.2)","%","\u2014","%","(2.4)","%","0.9","%","0.3","%"],["","2022","","2021","","$","%","Acquisitions","Disposals","FX","Organic"],["Academia & Government","$","1,280.1","","","$","489.4","","","$","790.7","","161.6","%","164.7","%","\u2014","%","(4.9)","%","1.8","%"],["Intellectual Property","927.1","","","974.3","","","(47.2)","","(4.8)","%","0.3","%","(1.3)","%","(6.1)","%","2.3","%"],["Life Sciences & Healthcare","452.6","","","413.2","","","39.4","","9.5","%","8.6","%","\u2014","%","(3.2)","%","4.1","%"],["Revenues, net","$","2,659.8","","","$","1,876.9","","","$","782.9","","41.7","%","45.0","%","(0.7)","%","(5.2)","%","2.6","%"]]
[[/GREPCENT_TABLE]]

2023 vs. 2022

A&G segment revenues increased from organic growth, primarily related to subscription revenues driven by price increases, reflecting a trend consistent with the increase in our ACV between periods. IP segment revenues decreased primarily due to the divestiture of the MarkMonitor business with organic decline due to lower trademarks transactional volumes and patent search & analytics revenue. LS&H segment revenues decreased primarily due to lower LS&H real world data sales.

2022 vs. 2021

A&G revenues increased primarily due to the acquisition of ProQuest, further supplemented by organic growth driven by increased subscription revenues from price increases and the benefit of net installations. IP segment revenues decreased primarily due to FX headwinds that weren’t fully offset by organic growth driven by increases in patent renewal volumes and improvements in yield per case. LS&H segment revenues increased primarily due to the acquisition of ProQuest, further

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

(In millions, except option prices, ratios or as noted)

supplemented by organic growth driven by increased subscription revenues from price increases, the benefit of net installations, and increases in custom data sales.

Revenues by geography

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Change","% of Change"],["","2023","","2022","","$","%","Acquisitions","Disposals","FX","Organic"],["Americas","$","1,405.5","","","$","1,462.3","","","$","(56.8)","","(3.9)","%","\u2014","%","(3.6)","%","0.4","%","(0.7)","%"],["Europe/Middle East/Africa","707.5","","","698.3","","","9.2","","1.3","%","\u2014","%","(1.3)","%","1.9","%","0.7","%"],["Asia Pacific","515.8","","","499.2","","","16.6","","3.3","%","\u2014","%","(0.5)","%","1.5","%","2.3","%"],["Revenues, net","$","2,628.8","","","$","2,659.8","","","$","(31.0)","","(1.2)","%","\u2014","%","(2.4)","%","0.9","%","0.3","%"],["","2022","","2021","","$","%","Acquisitions","Disposals","FX","Organic"],["Americas","$","1,462.3","","","$","924.7","","","$","537.6","","58.1","%","57.8","%","(1.1)","%","(2.1)","%","3.5","%"],["Europe/Middle East/Africa","698.3","","","555.8","","","142.5","","25.6","%","35.5","%","(0.3)","%","(8.3)","%","(1.3)","%"],["Asia Pacific","499.2","","","396.4","","","102.8","","25.9","%","28.3","%","(0.2)","%","(7.9)","%","5.7","%"],["Revenues, net","$","2,659.8","","","$","1,876.9","","","$","782.9","","41.7","%","45.0","%","(0.7)","%","(5.2)","%","2.6","%"]]
[[/GREPCENT_TABLE]]

2023 vs. 2022

Americas revenues decreased primarily due to the divestiture of the MarkMonitor business and from organic decline, due to lower LS&H real world data and IP re-occurring and transactional revenue. EMEA revenues organic growth was driven by A&G subscription and IP re-occurring revenue. APAC revenues organic growth was driven primarily by A&G subscription revenue.

2022 vs. 2021

In all regions, revenues increased primarily due to the acquisition of ProQuest, partially offset by FX headwinds and reductions from the divestiture of the MarkMonitor business. Americas organic growth of 3.5% was driven by improved subscription and re-occurring revenues and APAC’s organic growth of 5.7% was led by A&G and LS&H subscription revenues increases.

Cost of revenues

Cost of revenues consists of costs related to the production, servicing, and maintenance of our products and are composed primarily of related personnel costs, data center services and licensing costs, and costs to acquire or produce content including royalty fees.

The decrease of 5.0% compared to 2022 was primarily driven by effective contractor spend management and the divestiture of the MarkMonitor business, partially offset by product-related agent costs. As a percentage of revenues, Cost of revenues decreased by 1.4% from the prior year.

The increase of 52.4% compared to 2021 was primarily driven by the acquisition of ProQuest, partially offset by a reduction in product and people-related costs driven by our cost-savings and margin improvement restructuring programs. As a percentage of revenues, Cost of revenues increased by 2.5% from the prior year.

Selling, general and administrative costs

Selling, general and administrative costs (“SG&A”) include nearly all business costs not directly attributable to the production, servicing, and maintenance of our products and are composed primarily of related personnel costs, third-party professional services fees, facility costs like rent and utilities, technology costs associated with our corporate infrastructure, and transaction expenses associated with acquisitions, divestitures, and capital market activities including advisory, legal, and other professional and consulting costs.

The increase of 1.3% compared to 2022 was primarily attributed to increased technology costs associated with increased technology costs to support the business.

The increase of 13.5% compared to 2021 was primarily driven by our acquisition of ProQuest, partially offset by reductions in outside services, share-based compensation, legal, rent, and other miscellaneous business operating expenses.

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(In millions, except option prices, ratios or as noted)

Depreciation and amortization

Depreciation expense relates to our fixed assets, including mainly computer hardware and leasehold improvements, furniture and fixtures. Amortization expense relates to our definite-lived intangible assets, including mainly technology and content, customer relationships, internally generated computer software, and trade names.

2023 was consistent with 2022. As a percentage of revenues, Depreciation and amortization increased by 0.2% from the prior year.

The increase of 32.1% compared to 2021 was primarily driven by the additional amortization from the intangible assets acquired from the ProQuest acquisition. As a percentage of revenues, Depreciation and amortization decreased by 2.0% from the prior year.

Goodwill and intangible asset impairments

In both 2023 and 2022, we completed quantitative goodwill impairment assessments using a DCF analysis to estimate the fair value of each of our reporting units. Based on these quantitative analyses performed, we recorded a total goodwill impairment charge of $844.7 and $4,449 in 2023 and 2022, respectively. Additionally, during the year ended December 31, 2023, in connection with intangible assets classified as assets held-for-sale as of December 31, 2023, we recorded an impairment charge of $132.2 and a $3.0 goodwill impairment charge associated with the disposal group’s allocated portion of the IP segment reporting unit’s goodwill balance.

For additional information regarding our recent goodwill and intangible asset impairments, see Note 6 - Other Intangible Assets, net and Goodwill included in Part II, Item 8 of this annual report.

Restructuring and other impairments

Restructuring and impairment expense includes costs associated with involuntary termination benefits provided to employees under the terms of a one-time benefit arrangement, ongoing benefit arrangements, certain contract termination costs, other costs associated with an exit or disposal activity and impairment charges associated with right-of-use assets in which we’ve ceased the use of during the period. We’ve incurred total lifetime costs of approximately $302 related to approved restructuring plans to streamline operations within targeted areas of our business dating back to 2019, primarily related to acquisition integration programs. As of December 31, 2023, we expect to incur approximately $20 of additional restructuring costs associated with the Segment Optimization Program, which we expect to incur primarily within 2024. Restructuring and other impairments also includes write-downs associated with equity investments of $6.1 in 2023. For further information regarding each of our restructuring initiatives and impairment impacts, see Note 13 - Restructuring and Other Impairments included in Part II, Item 8 of this annual report.

The decrease of 40.0% compared to 2022 was driven by the wind-down of expenses associated with the ProQuest Acquisition Integration and OneClarivate Program, partially offset by an increase to expenses incurred related to the Segment Optimization Program and the impact of the equity investment write-downs.

The decrease of 48.5% compared to 2021 was driven by the wind-down of expenses associated with the CPA Global Acquisition Integration and Optimization Program, DRG Acquisition Integration Program, and Operation Simplification and Optimization Program, partially offset by increased expenses incurred related to the One Clarivate and ProQuest Acquisition Integration Program.

Other operating expense (income), net

The change of $314.0 in 2023 compared to 2022 was driven by a $278.5 gain on sale from the divestiture of the MarkMonitor business in the prior year, and, to a lesser extent, a net loss on foreign exchange remeasurement in 2023 compared to a net gain in the prior year with the largest impact derived from transactions denominated in GBP. These factors were partially offset by a gain on legal settlement of $49.4 in 2023.

The change of $352.3 in 2022 compared to the $27.5 net expense in 2021 was driven by a $278.5 gain on sale from the divestiture of the MarkMonitor business, and, to a lesser extent, a net gain on foreign exchange remeasurement compared to a net loss in the prior year with the largest impacts derived from transactions denominated in GBP.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

(In millions, except option prices, ratios or as noted)

Fair value adjustment of warrants

We account for our outstanding private placement warrants as liabilities at fair value on the balance sheet, which are subject to remeasurement at each balance sheet date and any change in fair value is recognized as of the end of each period for which earnings are reported. The adjustments in fair value, resulting in a gain in the current and comparative years, was driven primarily by changes in the risk-free rate, our share price, and the impact of those changes as key inputs to the Black-Scholes option valuation model.

Interest expense, net

The increase of 8.7% compared to 2022 was primarily driven by higher floating interest rates on borrowings under the Term Loan Facility, partially offset by gains under our interest rate swap program and debt prepayments.

The increase of 7.0% compared to 2021 was primarily driven by higher floating interest rates on borrowings under the Term Loan Facility and from our private placement offerings and subsequent exchange offers of the 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

The increased benefit in 2023 compared to 2022 was primarily due to one-time tax benefits recorded in the year ended December 31, 2023, offset by one-time tax benefits recorded in 2022. In 2023, we recorded a tax benefit from settlement of an open tax dispute, a tax benefit associated with the impairment of intangible assets, a tax benefit relating to the partial release of valuation allowance recorded against certain U.S. tax attributes, and a tax benefit resulting from goodwill impairment. In 2022, we recorded tax benefits from the release of a valuation allowance upon the execution of an internal legal entity restructuring, and from the release of an uncertain tax position that was favorably resolved.

In December 2021, the Organization for Economic Co-operation and Development (“OECD”) issued model rules for a new global minimum tax framework under its “Pillar Two” initiative, and various governments around the world have issued, or have announced that they plan to issue, legislation consistent with the OECD model rules. We are within the scope of the OECD Pillar Two model rules.

During Q3 2023, the United Kingdom enacted legislation consistent with the OECD model rules, which will be effective beginning January 1, 2024. We are in the process of assessing the impact of legislation enacting global minimum tax rules in various jurisdictions. Based on our most recent tax filings, country-by-country reporting, and financial information available, we believe that most of the jurisdictions in which we operate will meet the requirements for transitional safe harbor relief. Therefore, we do not expect the global minimum tax to have a material impact in 2024. However, future legislation or changes in our financial results could materially increase our global minimum tax expense in future years.

The benefit in 2022 compared to the provision in 2021 was driven by one-time tax benefits from the release of a valuation allowance upon the execution of an internal legal entity restructuring effective December 31, 2022, and from the release of an uncertain tax position that was favorably resolved. These benefits were partially offset by tax expense accruals on a significant fair value adjustment gain on our outstanding private placement warrants and on an increase in taxable income in tax-paying jurisdictions.

Dividends on preferred shares

Dividends on our mandatory convertible preferred shares are calculated at an annual rate of 5.25% of the liquidation preference of $100.00 per share. We may pay declared dividends on March 1, 2024 and June 1, 2024 prior to the automatic conversion of these shares.

Adjusted EBITDA and Adjusted EBITDA margin (non-GAAP measure)

The following table presents our calculation of Adjusted EBITDA and Adjusted EBITDA margin for the years ended December 31, 2023, 2022, and 2021, and reconciles these measures to our Net income (loss) for the same periods:

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(In millions, except option prices, ratios or as noted)

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