CLARIVATE Plc - Quarter Report: 2020 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _______

Commission File No. 001-38911

CLARIVATE PLC

(Exact name of registrant as specified in its charter)

Jersey, Channel Islands

(State or other jurisdiction of incorporation or organization)

Not applicable

(I.R.S. Employer Identification No.)


Friars House
160 Blackfriars Road
London			SE1 8EZ
United Kingdom
(Address of principal executive offices)

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
Ordinary shares	CCC	New York Stock Exchange

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.

Large accelerated filer

☐

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 October 26, 2020 was 605,956,711.

DOCUMENTS INCORPORATED BY REFERENCE

None

Table of Contents


			Page
Part I. Financial Information			6
Item 1. Financial Statements (Unaudited)			6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			41
Item 3. Quantitative and Qualitative Disclosures About Market Risk			63
Item 4. Controls and Procedures			64

PART II. Other Information			65
Item 1. Legal Proceedings			65
Item 1A. Risk Factors			66
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			66
Item 3. Defaults Upon Senior Securities			66
Item 4. Mine Safety Disclosures			66
Item 5. Other Information			66
Item 6. Exhibits			67

SIGNATURES			68

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.” 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:

•our ability to make, consummate and integrate acquisitions and realize any expected benefits or effects of any acquisitions or the timing, final purchase price, costs associated with achieving synergies or integration or consummation of any acquisitions, including the DRG and the CPA Global acquisitions;

•our ability to compete in the highly competitive markets in which we operate, and potential adverse effects of this competition;

•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 and changing regulatory requirements;

•our ability to achieve all expected benefits from the items reflected in the adjustments included in Standalone Adjusted EBITDA, a non-GAAP measure;

•our ability to achieve operational cost improvements and other anticipated benefits of our merger with Churchill Capital Corp in 2019;

•our dependence on third parties, including public sources, for data, information and other services;

•increased accessibility to free or relatively inexpensive information sources;

•our ability to maintain high annual revenue renewal rates as recurring subscription-based arrangements generate a significant percentage of our revenues;

•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 reliance on our own and third-party telecommunications, data centers and network systems, as well as the Internet;

•potential adverse tax consequences resulting from the international scope of our operations, corporate structure and financing structure;

•increased risks resulting from our international operations, including from pandemics such as the COVID-19 global public health crisis;

•our ability to comply with various trade restrictions, such as sanctions and export controls, resulting from our international operations;

•our ability to comply with the anti-corruption laws of the United States and various international jurisdictions;

•the United Kingdom’s withdrawal from the EU;

•government and agency demand for our products and services and our ability to comply with government contracting regulations;

•changes in legislation and regulation, which may impact how we provide products and services and how we collect and use information, particularly relating to the use of personal data;

•actions by governments that restrict access to our platform in their countries;

•potential intellectual property infringement claims;

•our ability to operate in a litigious environment;

•our potential need to recognize impairment charges related to goodwill, identified intangible assets and fixed assets;

•our ability to make timely and accurate financial disclosure and maintain effective systems of internal controls;

•our substantial indebtedness, which could adversely affect our financial condition, limit our ability to raise additional capital to fund our operations and prevent us from fulfilling our obligations under our indebtedness; and

•other factors beyond our control, including the impact from COVID-19.

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 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. Generally, we explain a defined term the first time it is used. 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; and “Onex” refers to the affiliates of Onex Partners Advisor LP that from time to time hold our ordinary shares.

Unless otherwise indicated, dollar amounts throughout this quarterly report are presented in thousands 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.

Foreign Private Issuer Status and Financial Presentation

We currently qualify as a foreign private issuer (“FPI”) under the rules of the SEC. We anticipate that we will no longer retain FPI status after December 31, 2020. However, even though we qualify as an FPI, we report our financial results in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and, we have elected to file our periodic and current reports on Forms 10-K, 10-Q and 8-K.

PART I. Financial Information

Item 1. Financial Statements and Supplementary Data

CLARIVATE PLC

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except share data)


	September 30, 2020		December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	601,075	$	76,130
Restricted cash	567		9
Accounts receivable, net of allowance for doubtful accounts of $9,744 and $16,511 at September 30, 2020 and December 31, 2019, respectively	238,638		333,858
Prepaid expenses	49,240		40,710
Other current assets	18,672		11,750
Assets held for sale	36,059		30,619
Total current assets	944,251		493,076
Computer hardware and other property, net	23,618		18,042
Other intangible assets, net	2,217,227		1,828,640
Goodwill	1,818,354		1,328,045
Other non-current assets	21,836		18,632
Deferred income taxes	25,520		19,488
Operating lease right-of-use assets	99,908		85,448
Total Assets	$	5,150,714	$	3,791,371

Liabilities and Shareholders’ equity
Current liabilities:
Accounts payable	$	19,898	$	26,458
Accrued expenses and other current liabilities	253,341		159,217
Current portion of deferred revenues	326,098		407,325
Current portion of operating lease liabilities	25,691		22,130
Current portion of long-term debt	12,600		9,000
Liabilities held for sale	25,048		26,868
Total current liabilities	662,676		650,998
Long-term debt	1,910,993		1,628,611
Non-current portion of deferred revenues	24,080		19,723
Other non-current liabilities	19,990		18,891
Deferred income taxes	95,527		48,547
Operating lease liabilities	79,147		64,189
Total liabilities	2,792,413		2,430,959
Commitments and contingencies
Shareholders’ equity:
Ordinary Shares, no par value; unlimited shares authorized at September 30, 2020 and December 31, 2019; 389,220,967 and 306,874,115 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively	3,328,776		2,208,529
Accumulated other comprehensive loss	(5,193)		(4,879)
Accumulated deficit	(965,282)		(843,238)
Total shareholders’ equity	2,358,301		1,360,412
Total Liabilities and Shareholders’ equity	$	5,150,714	$	3,791,371

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CLARIVATE PLC

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except share and per share data)


	Three Months Ended September 30,
	2020		2019
Revenues, net	$	284,360	$	242,998

Operating costs and expenses:
Cost of revenues, excluding depreciation and amortization	(91,805)		(87,117)
Selling, general and administrative costs, excluding depreciation and amortization	(91,319)		(96,017)
Share-based compensation expense	(6,796)		(9,567)
Depreciation	(2,918)		(2,281)
Amortization	(65,696)		(41,656)
Transaction expenses	(34,938)		(8,645)
Transition, integration and other related expenses	(222)		(3,327)
Restructuring and impairment	(3,192)		—
Legal settlement	—		39,399
Other operating income (expense), net	(138)		2,057

Total operating expenses	(297,024)		(207,154)
Income (loss) from operations	(12,664)		35,844
Interest expense, net	(20,244)		(23,369)
Income (loss) before income tax	(32,908)		12,475
Provision for income taxes	(4,325)		(1,644)

Net income (loss)	$	(37,233)	$	10,831
Per share
Basic	$	(0.10)	$	0.04
Diluted	$	(0.10)	$	0.03
Weighted-average shares outstanding
Basic	387,845,438		305,428,062
Diluted	387,845,438		328,854,063

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CLARIVATE PLC

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except share and per share data)


	Nine Months Ended September 30,
	2020		2019
Revenues, net	$	798,452	$	719,332

Operating costs and expenses:
Cost of revenues, excluding depreciation and amortization	(265,063)		(264,013)
Selling, general and administrative costs, excluding depreciation and amortization	(266,749)		(280,766)
Share-based compensation expense	(31,121)		(46,675)
Depreciation	(8,151)		(6,463)
Amortization	(168,049)		(138,694)
Transaction expenses	(70,154)		(42,073)
Transition, integration and other related expenses	(3,774)		(9,750)
Restructuring and impairment	(26,792)		—
Legal settlement	—		39,399
Other operating income, net	14,675		3,047

Total operating expenses	(825,178)		(745,988)
Loss from operations	(26,726)		(26,656)
Interest expense, net	(72,306)		(93,938)
Loss before income tax	(99,032)		(120,594)
Provision for income taxes	(13,693)		(5,596)

Net loss	$	(112,725)	$	(126,190)
Per share:
Basic and diluted	$	(0.31)	$	(0.48)
Weighted-average shares outstanding
Basic and diluted	369,019,802		262,894,388

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CLARIVATE PLC

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(In thousands)


	Three Months Ended September 30,
	2020		2019
Net income (loss)	$	(37,233)	$	10,831
Other comprehensive income (loss), net of tax:
Interest rate swaps	1,092		(1,061)
Actuarial gain (loss)	(15)		19
Foreign currency translation adjustments	9,359		(3,682)
Total other comprehensive income (loss), net of tax	10,436		(4,724)
Comprehensive income (loss)	$	(26,797)	$	6,107


	Nine Months Ended September 30,
	2020		2019
Net loss	$	(112,725)	$	(126,190)
Other comprehensive loss, net of tax:
Interest rate swaps	(2,052)		(6,852)
Actuarial gain (loss)	(57)		49
Foreign currency translation adjustments	1,795		(5,514)
Total other comprehensive loss, net of tax	(314)		(12,317)
Comprehensive loss	$	(113,039)	$	(138,507)

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CLARIVATE PLC

Condensed Consolidated Statement of Changes in Equity (Unaudited)

(In thousands, except share data)


	Ordinary Shares			Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Shareholders’ Equity
	Shares	Amount
Balance at December 31, 2018, as originally reported	1,646,223	$	1,677,510	$	5,358	$	(632,261)	$	1,050,607
Conversion of units of share capital	215,880,202	—		—		—		—
Balance at December 31, 2018, as recasted	217,526,425	1,677,510		5,358		(632,261)		1,050,607
Issuance of ordinary shares, net	2	—		—		—		—
Share-based award activity	—	3,176		—		—		3,176
Net loss	—	—		—		(59,260)		(59,260)
Comprehensive loss	—	—		(3,751)		—		(3,751)
Balance at March 31, 2019	217,526,427	1,680,686		1,607		(691,521)		990,772
Tax Receivable Agreement	—	(264,600)		—		—		(264,600)
Issuance of ordinary shares, net	(7,929)	137		—		—		137
Merger recapitalization	87,749,999	678,054		—		—		678,054
Share-based award activity	—	33,932		—		—		33,932
Net loss	—	—		—		(77,761)		(77,761)
Comprehensive loss	—	—		(3,842)		—		(3,842)
Balance at June 30, 2019	305,268,497	2,128,209		(2,235)		(769,282)		1,356,692
Exercise of stock options	1,254,662	141		—		—		141

Shares returned to the Company for net share settlements	(472,396)	—		—		—		—
Share-based award activity	—	9,567		—		—		9,567
Net income	—	—		—		10,831		10,831
Comprehensive loss	—	—		(4,724)		—		(4,724)
Balance at September 30, 2019	306,050,763	$	2,137,917	$	(6,959)	$	(758,451)	$	1,372,507

Balance at December 31, 2019	306,874,115	$	2,208,529	$	(4,879)	$	(843,238)	$	1,360,412
Adjustment to opening Accumulated deficit related to adoption of ASC Topic 326	—	—		—		(9,319)		(9,319)
Exercise of public warrants	28,880,098	277,526		—		—		277,526
Exercise of stock options	3,715,455	1,182		—		—		1,182
Vesting of restricted stock units	169,842	—		—		—		—
Shares returned to the Company for net share settlements	(2,301,458)	(10,302)		—		—		(10,302)
Issuance of ordinary shares, net	27,600,000	539,714		—		—		539,714
Share-based award activity	—	16,384		—		—		16,384
Net loss	—	—		—		(74,001)		(74,001)
Comprehensive loss	—	—		(8,470)		—		(8,470)
Balance at March 31, 2020	364,938,052	3,033,033		(13,349)		(926,558)		2,093,126

Exercise of stock options	3,723,332	—		—		—		—
Vesting of restricted stock units	2,528	—		—		—		—
Shares returned to the Company for net share settlements	(2,311,293)	(15,118)		—		—		(15,118)
Issuance of ordinary shares, net	20,982,500	304,030		—		—		304,030
Share-based award activity	—	4,322		—		—		4,322
Net loss	—	—		—		(1,491)		(1,491)
Comprehensive loss	—	—		(2,280)		—		(2,280)
Balance at June 30, 2020	387,335,119	3,326,267		(15,629)		(928,049)		2,382,589
Exercise of stock options	4,068,307	125		—		—		125
Vesting of restricted stock units	2,459	—		—		—		—
Shares returned to the Company for net share settlements	(2,184,918)	(3,136)		—		—		(3,136)

Share-based award activity	—	5,520		—		—		5,520
Net loss	—	—		—		(37,233)		(37,233)
Comprehensive income	—	—		10,436		—		10,436

Balance at September 30, 2020	389,220,967	$	3,328,776	$	(5,193)	$	(965,282)	$	2,358,301

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CLARIVATE PLC

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)


	Nine Months Ended September 30,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(112,725)	$	(126,190)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	176,200		145,157
Allowance for doubtful accounts and credit losses	1,830		1,869


Gain on disposal of business	(1,052)		—
Deferred income tax benefit	(7,420)		(8,222)
Share-based compensation	26,344		46,675
Restructuring and impairment	4,880		—
Gain on foreign currency forward contracts	(2,903)		—
Mark to market loss on DRG contingent shares	30,839		—
Deferred finance charges	3,140		14,678
Other operating activities	(3,902)		(1,708)
Changes in operating assets and liabilities:
Accounts receivable	129,398		99,470
Prepaid expenses	(13,335)		(3,010)
Other assets	62,818		7,977
Accounts payable	(8,394)		(9,662)
Accrued expenses and other current liabilities	(65,062)		3,388
Deferred revenue	(93,926)		(51,100)
Operating lease right of use assets	5,826		9,438
Operating lease liabilities	(6,611)		(9,934)

Other liabilities	2,077		(6,338)
Net cash provided by operating activities	128,022		112,488

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(78,597)		(43,681)
Acquisition, net of cash acquired	(885,323)		—
Proceeds from sale of product line, net of restricted cash	3,751		—

Acquisition of intangible assets	(5,982)		(2,625)
Net cash used in investing activities	(966,151)		(46,306)

CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of principal on long-term debt	(9,450)		(641,508)
Repayment of revolving credit facility	(65,000)		(50,000)
Proceeds of revolving credit facility	—		5,000
Proceeds from reverse recapitalization	—		682,087
Contingent purchase price payment	(4,115)		—
Payment of debt issuance costs	(5,267)		—


Proceeds from issuance of debt	360,000		—
Proceeds from issuance of ordinary shares	843,752		—

Proceeds from warrant exercises	277,526		—
Proceeds from stock options exercised	1,307		278
Payments related to tax withholding for stock-based compensation	(28,674)		—



Net cash provided by (used in) financing activities	1,370,079		(4,143)
Effect of exchange rate changes on cash and cash equivalents, and restricted cash	(6,447)		1,198
Net increase in cash and cash equivalents, and restricted cash	525,503		63,237

CLARIVATE PLC

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)


	Nine Months Ended September 30,
	2020		2019

Beginning of period:
Cash and cash equivalents	76,130		25,575
Restricted cash	9		9
Total cash and cash equivalents, and restricted cash, beginning of period	76,139		25,584
Cash and cash equivalents, and restricted cash, end of period	601,642		88,821

Cash and cash equivalents	601,075		88,812
Restricted cash	567		9
Total cash and cash equivalents, and restricted cash, end of period	$	601,642	$	88,821

SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest	$	61,796	$	69,711


Cash paid for income tax	$	20,147	$	21,128
Capital expenditures included in accounts payable	$	922	$	9,759
Tax receivable agreement included in liabilities	$	—	$	264,600

Assets received as reverse recapitalization capital	$	—	$	1,877
Liabilities assumed as reduction of reverse recapitalization capital	$	—	$	5,910

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CLARIVATE PLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands, except share and per share data)

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. We were initially registered on January 7, 2019, and at our 2020 annual general meeting, our shareholders approved a change of our corporate name from “Clarivate Analytics Plc” to “Clarivate Plc”. Pursuant to the definitive agreement entered into to effect a merger between Camelot Holdings (Jersey) Limited ("Jersey") and Churchill Capital Corp, a Delaware corporation, ("Churchill") (the “2019 Transaction”), the Company was formed for the purposes of completing the 2019 Transaction and related transitions and carrying on the business of Jersey, and its subsidiaries.

The Company is a provider of proprietary and comprehensive content, analytics, professional services and workflow solutions that enables users across government and academic institutions, life science companies and research and development (“R&D”) intensive corporations to discover, protect and commercialize their innovations. Our Science Product Group consists of our Web of Science and Life Science Product Lines. Both Product Lines provide curated, high-value, structured information that is delivered and embedded into the workflows of our customers, which include research intensive corporations, life science organizations and universities world-wide. Our Intellectual Property ("IP") Product Group consists of our Derwent, CompuMark and MarkMonitor Product Lines. These Product Lines help manage customers' end-to-end portfolios of intellectual property from patents to trademarks to corporate website domains.

In January 2019, we entered into an Agreement and Plan of Merger (as amended by Amendment No. 1 to the Agreement and Plan of Merger, dated February 26, 2019, and Amendment No. 2 to the Agreement and Plan of Merger, dated March 29, 2019, collectively, the “Merger Agreement”) by and among Churchill, Jersey, CCC Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Clarivate (“Delaware Merger Sub”), Camelot Merger Sub (Jersey) Limited, a private limited company organized under the laws of Jersey, Channel Islands and wholly owned subsidiary of Clarivate (“Jersey Merger Sub”), and the Company, which, among other things, provided for (i) Jersey Merger Sub to be merged with and into Jersey with Jersey being the surviving company in the merger (the “Jersey Merger”) and (ii) Delaware Merger Sub to be merged with and into Churchill with Churchill being the surviving corporation in the merger (the “Delaware Merger”), and together with the Jersey Merger, the “Mergers”.

On May 13, 2019, the 2019 Transaction was consummated, and Clarivate became the sole managing member of Jersey, operating and controlling all of the business and affairs of Jersey, through Jersey and its subsidiaries. Following the consummation of the 2019 Transaction on May 13, 2019, the Company’s ordinary shares and warrants began trading on the New York Stock Exchange. All of the Company’s public warrants have subsequently been redeemed. See Note 15 — "Shareholders' Equity" for further information regarding the redemption of the Company’s public warrants.

The 2019 Transaction was accounted for as a reverse recapitalization in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Under this method of accounting Churchill was treated as the "acquired" company for financial reporting purposes. This determination was primarily based on post 2019 Transaction relative voting rights, composition of the governing board, size of the two entities pre-merger, and intent of the 2019 Transaction. Accordingly, for accounting purposes, the 2019 Transaction was treated as the equivalent of the Company issuing stock for the net assets of Churchill. The net assets of Churchill, were stated at historical cost, with no goodwill or other intangible assets resulting from the 2019 Transaction. Reported amounts from operations included herein prior to the 2019 Transaction are those of Jersey.

In February 2020, the Company consummated a public offering of 27,600,000 ordinary shares at $20.25 per share. After this offering, Onex Corporation and Baring Private Equity Asia Limited ("BPEA") continued to beneficially own approximately 38.3% of the Company’s ordinary shares, down from approximately 70.8% of the ordinary shares beneficially owned by Onex Corporation and BPEA immediately after the closing of our merger with Churchill Capital Corp in 2019.

In June 2020, the Company consummated a public offering of 50,400,000 of our ordinary shares at a share price of $22.50 per share. Of the 50,400,000 ordinary shares, 14,000,000 were ordinary shares offered by Clarivate and 36,400,000 were ordinary shares offered by selling shareholders. The Company received approximately $304,030 in net proceeds from the sale of its ordinary shares, after deducting underwriting discounts and estimated offering

CLARIVATE PLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands, except share and per share data)

expenses payable. We used the net proceeds, in conjunction with the new $1,600,000 incremental term loan facility available to Clarivate on October 1, 2020, and cash on the balance sheet to fund the repayment of CPA Global's parent company outstanding debt $2,052,926 of outstanding debt. The Company did not receive any proceeds from the sale of ordinary shares by the selling shareholders. Immediately after the offering, Onex Corporation and Baring owned approximately 18.4% and 7.2%, respectively, of the Company's ordinary shares, down from an aggregate of 38.3% owned subsequent to the February 2020 offering.

On October 1, 2020, the Company completed its previously announced acquisition of CPA Global. See Note 22 — "Subsequent Events" for additional information regarding the CPA Global acquisition.

Risks and Uncertainties

In March 2020, the World Health Organization characterized COVID-19 as a pandemic. The rapid spread of COVID-19 and the continuously evolving responses to combat it have had an increasingly negative impact on the global economy. In view of the rapidly changing business environment, market volatility and heightened degree of uncertainty resulting from COVID-19, we are currently unable to fully determine its future impact on our business. However, we continue to assess the potential effect on our financial position, results of operations, and cash flows. If the global pandemic continues to evolve into a prolonged crisis, the effects could have an adverse impact on the Company's results of operations, financial condition and cash flows.

Note 2: Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements were prepared in conformity with U.S. GAAP. The Condensed Consolidated Financial Statements do not include all of the information or notes necessary for a complete presentation in accordance with U.S. GAAP. Accordingly, these Condensed Consolidated Financial Statements should be read in conjunction with the Company’s annual financial statements as of and for the year ended December 31, 2019. The results of operations for the three and nine months ended September 30, 2020 and 2019 are not necessarily indicative of the operating results for the full year.

In the opinion of management, the quarterly financial data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the quarterly periods presented. 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 are 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 U.S. dollar is the Company's reporting currency. As such, the financial statements are reported on a U.S. dollar basis.

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, 2019, which was filed with the SEC on March 2, 2020 (the "Annual Report"), except as noted below.

Accounts Receivable

Through the adoption of ASU 2016-13 and the related standards, the Company revised its policy regarding the recognition of expected credit losses and for its accounts receivable portfolio.

Accounts receivable are recorded at the amount invoiced to customers and do not bear interest. The Company estimates credit losses for trade receivables by aggregating similar customer types, because they tend to share similar credit risk characteristics, taking into consideration the number of days the receivable is past due. Provision rates for the allowance for doubtful accounts are based upon the historical loss method by evaluating factors such as the length of time receivables are past due and historical collection experience. Additionally, provision rates are based

CLARIVATE PLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands, except share and per share data)

upon current and future economic and competitive environment factors that could impact the collectability of the receivable. Trade and other receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include past due status greater than 360 days or bankruptcy of the debtor.

Newly Adopted Accounting Standards

FASB issued new guidance, ASU 2016-13 and various other related issuances, related to measurement of credit losses on financial instruments which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This new guidance replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. The Company has determined that the impact of this new accounting guidance will primarily affect our trade receivables. The Company prospectively adopted the standard on January 1, 2020. The adoption of this standard had an impact of $9,319 on the beginning Accumulated deficit balance in the Condensed Consolidated Balance Sheet as of January 1, 2020.

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, which provides targeted improvements or clarification and correction to the ASU 2016-01 Financial Instruments Overall, ASU 2016-13 Financial Instruments Credit Losses, and ASU 2017-12 Derivatives and Hedging accounting standards updates that were previously issued. The guidance is effective upon adoption of the related standards. The Company prospectively adopted the standard on January 1, 2020. This standard did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

In August 2018, the FASB issued guidance, ASU 2018-15, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The Company prospectively adopted the standard on January 1, 2020. The adoption of this standard did not have a material impact on the Company’s Condensed Consolidated Financial Statements. All future capitalized implementation costs incurred related to these hosting arrangements will be recorded as a prepaid asset and as a charge to operating expenses over the expected life of the contract.

Recently Issued Accounting Standards

Except as noted below, there have been no material changes from the recently issued accounting standards previously disclosed in the Annual Report. Please refer to “Item 8. – Financial Statements and Supplementary Data – Notes to the Consolidated Financial Statements – Note 3” section of the Annual Report on Form 10-K for a discussion of the recently issued accounting standards that relate to the Company.

In December 2019, the FASB issued ASU 2019-12, which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. The guidance is effective for all entities for fiscal years beginning after December 15, 2020, albeit early adoption is permitted. The Company determined during the first quarter of 2020 that it would not early adopt and is monitoring the impact the guidance would have been to the interim tax provision throughout the year, if early adopted. The Company has determined there would have been no material impact on its Interim Condensed Consolidated Financial Statements as of September 30, 2020 and we will continue to evaluate this standard through the required adoption date.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The guidance is effective for all entities from the period March 12, 2020 through December 31, 2022. The Company has elected the optional expedients for its interest rate swap agreements and debt agreements with reference to LIBOR. Upon meeting the specified criteria in the guidance, the Company will continue to account for its interest rate swaps in accordance with hedge accounting and will not apply modification accounting to its debt agreements.

CLARIVATE PLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands, except share and per share data)

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity and amends the scope guidance for contracts in an entity's own equity and certain aspects of the EPS guidance. The guidance is effective for all entities for fiscal years beginning after December 15, 2021, albeit early adoption is permitted no earlier than fiscal years beginning after December 15, 2020. The Company evaluated the initial impact of the adoption of this standard on its Condensed Consolidated Financial Statements and determined there is no impact as of September 30, 2020.

Note 4: Business Combinations

On May 13, 2019, the Company completed the 2019 Transaction. Jersey began operations in 2016 as a provider of proprietary and comprehensive content, analytics, professional services and workflow solutions that enables users across government and academic institutions, life science companies and R&D intensive corporations to discover, protect and commercialize their innovations. Churchill was a special purpose acquisition company whose business was to effect a merger, capital stock exchange, asset acquisition, stock purchase reorganization or similar business combination. The shares and earnings per share available to holders of the Company’s ordinary shares prior to the 2019 Transaction, have been recasted as shares reflecting the exchange ratio established in the 2019 Transaction (1.0 Jersey share to 132.13667 Clarivate shares).

Pursuant to the Merger Agreement, the aggregate stock consideration issued by the Company in the 2019 Transaction was $3,052,500, consisting of 305,250,000 newly issued ordinary shares of the Company valued at $10.00 per share, subject to certain adjustments described below. Of the $3,052,500, the shareholders of Jersey prior to the closing of the 2019 Transaction (the “Company Owners”) received $2,175,000 in the form of 217,500,000 newly issued ordinary shares of the Company. In addition, of the $3,052,500, Churchill public shareholders received $690,000 in the form of 68,999,999 newly issued ordinary shares of the Company. In addition, Churchill Sponsor LLC (the “sponsor”) received $187,500 in the form of 17,250,000 ordinary shares of the Company issued to the sponsor, and 1,500,000 additional ordinary shares of the Company were issued to certain investors. See Note 15 — "Shareholders' Equity" for further information.

Upon consummation of the 2019 Transaction, each outstanding share of common stock of Churchill was converted into one ordinary share of the Company. At the closing of the 2019 Transaction, the Company Owners held approximately 74% of the issued and outstanding ordinary shares of the Company and stockholders of Churchill held approximately 26% of the issued and outstanding shares of the Company, excluding the impact of (i) 52,800,000 warrants, (ii) approximately 24,806,793 compensatory options issued to the Company's management (based on number of options to purchase Jersey ordinary shares outstanding immediately prior to the 2019 Transaction, after giving effect to the exchange ratio described above) and (iii) 10,600,000 ordinary shares of Clarivate owned of record by the sponsor and available for distribution to certain individuals following the applicable lock-up and vesting restrictions.

Acquisition of Decision Resources Group

On February 28, 2020, we acquired 100% of the assets, liabilities and equity interests of Decision Resources Group ("DRG"), a premier provider of high-value data, analytics and insights products and services to the healthcare industry, from Piramal Enterprises Limited ("PEL"), which is a part of global business conglomerate Piramal Group. The acquisition helps us expand our core businesses and provides us with the potential to grow in the Life Sciences Product Line.

The aggregate consideration paid in connection with the closing of the DRG acquisition was $964,997, comprised of $900,000 of base cash plus $6,100 of adjusted closing cash paid on the closing date and up to 2,895,638 of the Company's ordinary shares to be issued to PEL following the one-year anniversary of closing. The contingent stock consideration was valued at $58,897 on the closing date and will be revalued at each period end. For the three and nine months ended September 30, 2020, the fair value of the contingent stock consideration increased by $25,076 and $30,839, respectively, which was recorded to Transaction expenses in the Condensed Consolidated Statement of Operations. The corresponding liability increased to $89,736 as of September 30, 2020 which was recorded to Accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheet. See Note 19 — "Commitments and Contingencies” for more information. The DRG acquisition was accounted for using the

CLARIVATE PLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands, except share and per share data)

acquisition method of accounting. 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. Goodwill is not deductible for tax purposes. Total transaction costs incurred in connection with the acquisition of DRG were $25,237 and $50,702 for the three and nine months ended September 30, 2020, respectively.

The amount of Revenues, net and Net loss resulting from the acquisition that are attributable to the Company's stockholders and included in the Condensed Consolidated Statements of Operations and Comprehensive Loss were as follows:


	Three months ended September 30, 2020
Revenues, net (1)	$	49,499
Net loss attributable to the Company's stockholders	$	(454)
(1) Includes $2,017 of a deferred revenue haircut recognized during the three months ended September 30, 2020.

	Nine Months Ended September 30, 2020
Revenues, net (1)	$	113,206
Net loss attributable to the Company's stockholders	$	(9,971)
(1) Includes $6,822 of a deferred revenue haircut recognized during the nine months ended September 30, 2020.

CLARIVATE PLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands, except share and per share data)

The purchase price allocation for the DRG acquisition as of the close date of February 28, 2020 is preliminary and may change upon completion of the determination of the fair value of assets acquired and liabilities assumed. The following table summarizes the preliminary purchase price allocation for this acquisition:


	Total
Accounts receivable	$	52,193
Prepaid expenses	4,295
Other current assets	68,001
Computer hardware and other property	4,136
Other intangible assets(1)	491,366
Other non-current assets	2,960
Operating lease right-of-use assets	25,099
Total assets	$	648,050
Accounts payable	3,474
Accrued expenses and other current liabilities	88,561
Current portion of deferred revenue	35,126
Current portion of operating lease liabilities	5,188
Deferred income taxes	47,467
Non-current portion of deferred revenue	936

Operating lease liabilities	20,341
Total liabilities	201,093
Fair value of acquired identifiable assets and liabilities	$	446,957

Purchase price, net of cash(2)	944,220
Less: Fair value of acquired identifiable assets and liabilities	446,957
Goodwill	$	497,263
(1) Includes $3,966 of internally developed software in progress acquired.
(2) The Company acquired cash of $20,777.

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 DRG’s identifiable intangible assets acquired and their remaining weighted-average amortization period (in years):


	Fair Value as of February 28, 2020		Remaining Weighted - Average Amortization Period (in years)
Customer relationships	$	381,000	17.6
Database and content	50,200		4.7
Trade names	5,200		4.0
Purchased software	23,000		6.4
Backlog	28,000		4.0
Total identifiable intangible assets	$	487,400

During the three and nine months ended September 30, 2020, there were additional purchase accounting adjustments of $314 related to fixed assets, deferred revenue and legal accrual with a corresponding increase to goodwill and $1,804 related to the aforementioned items and a reduction in the valuation of assumed lease liabilities and a corresponding reduction in goodwill, respectively.

CLARIVATE PLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands, except share and per share data)

Unaudited pro forma information for the Company for the periods presented as if the acquisition had occurred January 1, 2019 is as follows:


	Three Months Ended September 30,
	2020		2019
Pro forma revenues, net	$	286,377	$	289,623
Pro forma net loss attributable to the Company's stockholders	(35,371)		(2,086)

	Nine Months Ended September 30,
	2020		2019
Pro forma revenues, net	$	828,489	$	843,560
Pro forma net loss attributable to the Company's stockholders	(97,883)		(203,833)

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 condensed consolidated financial statements of the Company and from the historical accounting records of DRG.

The unaudited pro forma results include certain pro forma adjustments to revenue and net loss that were directly attributable to the acquisition, assuming the acquisition had occurred on January 1, 2019, 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 DRG debt and the additional Company borrowings in conjunction with the acquisition, (iii) acquisition-related transaction costs and other one-time non-recurring costs which reduced expenses by $161 and $26,348 for the three and nine months ended September 30, 2020 and increased expenses by $161 and $26,787 for the three and nine months ended September 30, 2019.

Note 5: Assets and Liabilities Held for Sale and Divested Operations

As of September 30, 2020, the Company began the process of negotiating an agreement for the sale of certain non-core assets and liabilities. As of September 30, 2020, the assets and liabilities related to the divestment met the criteria for classification as assets held for sale on the Company’s balance sheet. In anticipation of the sale, current assets of $15,958 and long term assets of $20,101 were reclassified to current assets held for sale, while current liabilities of $24,650 and long term liabilities of $398 were reclassified to current liabilities held for sale.

The divestiture does not represent a strategic shift and did not have a major effect on the Company’s operations or financial results, as defined by ASC 205-20, Discontinued Operations; as a result, the divestiture did not meet the criteria to be classified as discontinued operations.

The carrying amount of major classes of assets and liabilities that are included in Assets held for sale and Liabilities held for sale at September 30, 2020 consist of the following:

CLARIVATE PLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands, except share and per share data)


Assets:
Current assets:
Accounts receivable	$	6,774
Inventories	174
Prepaid expenses	9,010
Total current assets	15,958
Property, plant and equipment	25
Goodwill	9,129
Other intangible assets, net	10,232
Other non-current assets	602
Operating lease right-of-use assets	113
Total Assets held for sale	$	36,059

Liabilities:
Current liabilities:
Accounts payable	$	22
Accrued expenses and other current liabilities	6,068
Current portion of deferred revenues	18,480
Current portion of operating lease liabilities	80
Total current liabilities	24,650
Non-current portion of deferred revenues	363
Operating lease liabilities	35
Total Liabilities held for sale	$	25,048

On November 3, 2019, the Company entered into an agreement with OpSec Security for the sale of certain assets and liabilities of its MarkMonitor Product Line within its IP Group. The divestiture closed on January 1, 2020 for a total purchase price of $3,751. An impairment charge of $18,431 was recognized in the Statement of Operations during the fourth quarter 2019 to write down the Assets and Liabilities of the disposal group to fair value. Of the total impairment charge, $17,967 related to the write down of intangible assets and $468 to the write down of goodwill. There was an immaterial loss on the divestiture recorded to Other operating income (expense), net during the nine months ended September 30, 2020. The Company used the proceeds for general business purposes.

The divestiture does not represent a strategic shift and did not have a major effect on the Company’s operations or financial results, as defined by ASC 205-20, Discontinued Operations; as a result, the divestitures did not meet the criteria to be classified as discontinued operations.

Note 6: Accounts Receivable

Our accounts receivable balance consists of the following as of September 30, 2020 and December 31, 2019:


	September 30,		December 31,
	2020		2019
Accounts receivable	$	248,382	$	350,369
Less: Accounts receivable allowance	(9,744)		(16,511)
Accounts receivable, net	$	238,638	$	333,858

CLARIVATE PLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands, except share and per share data)

The Company estimates credit losses for trade receivables by aggregating similar customer types together, because they tend to share similar credit risk characteristics, taking into consideration the number of days the receivable is past due. Provision rates for the allowance for doubtful accounts are based upon the historical loss method by evaluating factors such as the length of time receivables that are past due and historical collection experience. Additionally, provision rates are based upon current and future economic and competitive environment factors that could impact the collectability of the receivable. Trade and other receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include past due status greater than 360 days or bankruptcy of the debtor. The activity in our accounts receivable allowance consists of the following:


Balance as of June 30, 2020	$	11,074
Write-offs	(2,675)
Additional provisions	1,043

Exchange differences	302
Balance as of September 30, 2020	$	9,744

Balance as of December 31, 2019	$	16,511
Opening balance sheet adjustment related to ASU 2016 -13 adoption	10,097
Write-offs	(18,614)
Additional provisions	1,830

Exchange differences	(80)
Balance as of September 30, 2020	$	9,744

The potential for credit losses is mitigated because customer creditworthiness is evaluated before credit is extended.

The Company recorded write-offs against the reserve of $2,675, $18,614 and 2,321 for the three and nine months ended September 30, 2020, and the year ended 2019, respectively.

We are monitoring the impacts from the COVID-19 pandemic on our customers and various counterparties. During the three and nine months ended September 30, 2020, the Company’s allowance for doubtful accounts and credit losses considered additional risk related to the pandemic. However, this risk to-date was not considered material.

Note 7: Leases

In the nine months ended September 30, 2020, the Company entered into an agreement to sublease an operating lease right of use asset. The Company recognized $397 and $1,106 of sublease income in the three and nine months ended September 30, 2020, respectively, within Other operating income (expense), net.

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 right-of-use asset's carrying amount over its estimated fair value. 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 $110 and $4,880 for three and nine months ended September 30, 2020, respectively. As part of the impairment charge, the carrying value of the Operating lease right of use asset was reduced by $4,880. See Note 21 — "Restructuring" for further information.

CLARIVATE PLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands, except share and per share data)

Note 8: Computer Hardware and Other Property, net

Computer hardware and other property, net consisted of the following:


	September 30, 2020		December 31, 2019
Computer hardware	$	29,646	$	24,620
Leasehold improvements	17,151		12,496
Furniture, fixtures and equipment	7,529		4,412
Total computer hardware and other property	54,326		41,528
Accumulated depreciation	(30,708)		(23,486)
Total computer hardware and other property, net	$	23,618	$	18,042

Depreciation expense amounted to $2,918 and $2,281 for the three months ended September 30, 2020 and 2019, respectively, and $8,151 and $6,463 for the nine months ended September 30, 2020 and 2019, respectively.

Note 9: 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:


	September 30, 2020						December 31, 2019
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Finite-lived intangible assets
Customer relationships	$	651,647	$	(194,003)	$	457,644	$	280,493	$	(180,571)	$	99,922
Databases and content	1,829,563		(431,393)		1,398,170		1,755,323		(342,385)		1,412,938
Computer software	351,262		(181,166)		170,096		285,701		(135,919)		149,782

Trade names	6,770		(830)		5,940		1,570		—		1,570
Backlog	28,090		(4,103)		23,987		—		—		—
Finite-lived intangible assets	2,867,332		(811,495)		2,055,837		2,323,087		(658,875)		1,664,212
Indefinite-lived intangible assets
Trade names	161,390		—		161,390		164,428		—		164,428
Total intangible assets	$	3,028,722	$	(811,495)	$	2,217,227	$	2,487,515	$	(658,875)	$	1,828,640

Amortization expense amounted to $65,696 and $41,656 for the three months ended September 30, 2020, and 2019, respectively, and $168,049 and $138,694 for the nine months ended September 30, 2020 and 2019, respectively.

In June 2020, the Company acquired the assets of CustomersFirst Now for a purchase price of $6,446, which was accounted for as an asset acquisition. As a result, the Company's identifiable intangible assets increased by $6,446, which consisted of $5,446 of databases and content and $1,000 of computer software. The databases and process methodology and the computer software have a remaining weighted average amortization period of 5.0 years and 3.0 years, respectively. The total remaining weighted average amortization period is 4.7 years.

Goodwill

The following table summarizes changes in the carrying amount of goodwill for the nine months ended September 30, 2020:

CLARIVATE PLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands, except share and per share data)


Balance as of December 31, 2019	$	1,328,045
Acquisitions	497,263

Transferred to Assets held for sale	(9,129)
Changes due to foreign currency fluctuations	2,175
Balance as of September 30, 2020	$	1,818,354

Note 10: Derivative Instruments

Interest Rate Swap Agreements

Effective March 31, 2017, the Company entered into interest rate swap arrangements with counterparties to reduce its exposure to variability in cash flows relating to interest payments on $300,000 of its outstanding Term Loan arrangements. Additionally, effective February 28, 2018, the Company entered into another interest rate swap relating to interest payments on $50,000 of its outstanding Term Loan arrangements. These hedging instruments mature on March 31, 2021. The Company applies hedge accounting by designating the interest rate swaps as a hedge on applicable future quarterly interest payments.

In April 2019, the Company entered into interest rate swap arrangements with counterparties to reduce its exposure to variability in cash flows relating to interest payments on $50,000 of its term loans, effective April 30, 2021. Additionally, in May 2019, the Company entered into additional interest rate swap arrangements with counterparties to reduce its exposure to variability in cash flows relating to interest payments on $100,000 of its term loan, effective March 2021. Both of these derivatives have notional amounts that amortize downward, and both have a maturity of September 2023. The Company will apply hedge accounting by designating the interest rate swaps as a hedge in applicable future quarterly interest payments.

Changes in the fair value are recorded in Accumulated other comprehensive loss ("AOCI") and the amounts reclassified out of AOCI are recorded to Interest expense, 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, according to the duration of related cash flows. The total fair value of the interest rate swaps was a liability of $6,667 as of September 30, 2020 and a liability of $2,778 as of December 31, 2019.

In March 2020, the Company amended all of its interest rate derivatives to reduce the 1% LIBOR floor to a 0% LIBOR floor. For the current derivatives, all other terms and conditions remain unchanged. The Company collected $1,737 in the nine months ended September 30, 2020 for the amendments of these derivatives. For the two forward starting swaps, an adjustment was made to reduce the weighted average fixed rate from 2.183% at December 31, 2019 to 1.695% at the amendment date.

The Company had a period of ineffectiveness related to the cash flow hedges in the three months ended March 31, 2020. The ineffectiveness was due to a drop in LIBOR rates below the LIBOR floor defined per the credit facilities, which were amended on March 31, 2020 resulting in a highly effective hedge. As a result of the ineffectiveness, the Company recognized a loss of $0 and $979 for the three and nine months ended September 30, 2020, respectively, which was recorded to Interest expense, net on the Condensed Consolidated Statement of Operations. As of September 30, 2020, there was no hedge ineffectiveness associated with the Company’s interest rate swaps.

The following table summarizes the changes in AOCI (net of tax) related to cash flow hedges for the three and nine months ended September 30, 2020:

CLARIVATE PLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands, except share and per share data)


AOCI balance at December 31, 2019	$	(2,778)
Derivative losses recognized in Other comprehensive loss	(3,160)
Amount reclassified out of Other comprehensive loss to Net loss	270
AOCI balance at March 31, 2020	(5,668)
Derivative losses recognized in Other comprehensive loss	(1,109)
Amount reclassified out of Other comprehensive loss to Net loss	855
AOCI Balance at June 30, 2020	(5,922)
Derivative losses recognized in Other comprehensive loss	(66)
Amount reclassified out of Other comprehensive loss to Net loss	1,158
AOCI Balance at September 30, 2020	$	(4,830)

The following table summarizes the changes in AOCI (net of tax) related to cash flow hedges for the three and nine months ended September 30, 2019:


AOCI balance at December 31, 2018	$	3,644
Derivative losses recognized in Other comprehensive loss	(2,376)
Amount reclassified out of Other comprehensive loss to Net loss	430
AOCI balance at March 31, 2019	1,698
Derivative losses recognized in Other comprehensive loss	(4,247)
Amount reclassified out of Other comprehensive loss to Net loss	402
AOCI Balance at June 30, 2019	(2,147)
Derivative losses recognized in Other comprehensive loss	(1,271)
Amount reclassified out of Other comprehensive loss to Net loss	210
AOCI Balance at September 30, 2019	$	(3,208)

Foreign Currency Forward Contracts

In September 2020, the Company entered into two foreign exchange forward contracts to reduce its exposure to variability in cash flows relating to funding of the repayment of CPA Global's parent company outstanding debt on October 1, 2020. The nominal amount of outstanding foreign currency contracts was $1,075,837 and $0 as of September 30, 2020 and December 31, 2019, 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, net in the Condensed Consolidated Statements of Operations, as the contracts are not designated as accounting hedges under the applicable sections of ASC Topic 815. The total fair value of the forward contracts represented an asset balance of $2,903 as of September 30, 2020, which was classified within Other current assets. The Company recognized a gain from the mark to market adjustment of $2,903, in Other operating income, net on the Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2020.

See Note 11 — "Fair Value Measurements" for additional information on derivative instruments.

Note 11: Fair Value Measurements

The Company records certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy that prioritizes the inputs used to measure fair value is described below. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

CLARIVATE PLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands, except share and per share data)

•Level 1 — Quoted prices in active markets for identical assets or liabilities.

•Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

•Level 3 — Unobservable inputs that are supported by little or no market activity. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

Below is a summary of the valuation techniques used in determining fair value:

Derivatives - Derivatives consist of foreign exchange contracts and interest rate swaps. The fair value of foreign exchange contracts is based on observable market inputs of spot and forward rates or using other observable rates. The fair value of the interest rate swaps is the estimated amount that the Company would receive or pay to terminate such agreements, taking into account market interest rates and the remaining time to maturities or using market inputs with mid-market pricing as a practical expedient for bid-ask spread. See Note 10 — "Derivative Instruments" for additional information.

Contingent consideration - The Company values contingent cash consideration related to business combinations using a weighted probability calculation of potential payment scenarios discounted at rates reflective of the risks associated with the expected future cash flows. Key assumptions used to estimate the fair value of contingent consideration include revenue, net new business and operating forecasts and the probability of achieving the specific targets. The Company values contingent stock consideration related to business combinations using observable market data, adjusted for indemnity losses and claims for indemnity losses valued using other indirect market inputs observable in the marketplace.

The carrying value of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and other accruals readily convertible into cash approximate fair value because of the short-term nature of the instruments.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The Company has determined that its forward contracts, included in other current assets, along with its interest rate swaps, included in Accrued expenses and other current liabilities and Other non-current liabilities according to the duration of related cash flows, reside within Level 2 of the fair value hierarchy.

In accordance with ASC 805, we estimated the fair value of the earn-outs using a Monte Carlo simulation. The amount of the earn-outs approximate fair value due to the short term nature of their remaining payments as of September 30, 2020 and December 31, 2019. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 820. As of September 30, 2020, the Company increased the earn-out liabilities related to Publons based on current period performance and paid the remaining earn-out liabilities related to TrademarkVision. These acquisitions occurred in 2017 and 2018, respectively. The amount payable is contingent upon the achievement of certain company specific milestones and performance metrics including number of cumulative users, cumulative reviews and annual revenue over a 1-year and 3-year period. Changes in the earn-out are recorded to Transaction expenses in the Condensed Consolidated Statement of Operations. There were no transfers of assets or liabilities between levels during the periods ended September 30, 2020 and December 31, 2019. The earn-out liability is recorded in Accrued expenses and other current liabilities and Other non-current liabilities and is classified as Level 3 in the fair value hierarchy.

As of September 30, 2020, the Company maintains a contingent stock liability based on observable market data relating to the DRG acquisition that occurred on February 28, 2020. Changes in the contingent stock liability are recorded to Transaction expenses in the Condensed Consolidated Statement of Operations. There were no transfers of assets or liabilities between levels during the periods ended September 30, 2020 and December 31, 2019. The contingent stock liability is recorded in Accrued expenses and other current liability and is classified as Level 2 in the fair value hierarchy. The amount is payable on the one year anniversary of the acquisition date and is contingent upon any indemnity losses or claims for indemnity losses as defined in the purchase agreement. This fair value measurement is based on observable market data and other indirect observable market inputs and thus represents a Level 2 measurement as defined in ASC 820.

CLARIVATE PLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands, except share and per share data)


The following table presents the changes in the earn-out, the only Level 3 item, for the three and nine months ended September 30, 2020:
Balance as of December 31, 2019	$	11,100
Payment of earn-out liability (1)	(8,000)
Revaluations included in earnings	380
Balance as of March 31, 2020	3,480
Payment of earn-out liability	—
Revaluations included in earnings	130
Balance as of June 30, 2020	3,610
Payment of earn-out liability	—
Revaluations included in earnings	91
Balance as of September 30, 2020	$	3,701

The following table presents the changes in the earn-out, the only Level 3 item, for the three and nine months ended September 30, 2019:
Balance as of December 31, 2018	$	7,075
Payment of earn-out liability	—
Revaluations included in earnings	—
Balance as of March 31, 2019	7,075
Payment of earn-out liability	—
Revaluations included in earnings	469
Balance as of June 30, 2019	7,544
Payment of earn-out liability	—
Revaluations included in earnings	4,616
Balance as of September 30, 2019	$	12,160
(1) See Note 19 - “Commitments and Contingencies” for further details.

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 September 30, 2020 and December 31, 2019:

CLARIVATE PLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands, except share and per share data)


	Level 1		Level 2		Level 3		Total Fair Value
September 30, 2020
Assets
Forward contracts asset	$	—	$	2,903	$	—	$	2,903

Total	$	—	$	2,903	$	—	$	2,903
Liabilities
Interest rate swap liability	$	—	$	6,667	$	—	$	6,667
Earn-out liability	—		—		3,701		3,701
Contingent stock liability	—		89,736		$	—	89,736
Total	$	—	$	96,403	$	3,701	$	100,104

	Level 1		Level 2		Level 3		Total Fair Value
December 31, 2019



Liabilities
Interest rate swap liability	$	—	$	2,778	$	—	$	2,778
Earn-out liability	—		—		11,100		11,100
Total	$	—	$	2,778	$	11,100	$	13,878

Non-Financial Assets Valued on a Non-Recurring Basis

The Company’s long-lived assets, including goodwill, indefinite-lived intangibles and finite-lived intangible assets subject to amortization, are measured at fair value on a non-recurring basis. These assets are measured at cost but are written-down to fair value, if necessary, as a result of impairment.

Finite-lived Intangible Assets - If a triggering event occurs, the Company compares the carrying value to the undiscounted cash flows associated with the assets or asset group to determine if the cash flows are recoverable. If the undiscounted cash flows are not recoverable, the Company determines the estimated fair value of finite-lived intangible assets by determining the present value of the expected cash flows and compares that amount to the carrying value of the assets or asset group. If the carrying amount exceeds the estimated fair value, an impairment loss is recognized in an amount equal to the excess.

Indefinite-lived Intangible Asset - If a qualitative analysis indicates that it is more likely than not that the estimated fair value is less than the carrying value of an indefinite-lived intangible asset, the Company determines the estimated fair value of the indefinite-lived intangible asset (trade name) by determining the present value of the estimated royalty payments on an after-tax basis that it would be required to pay the owner for the right to use such trade name. If the carrying amount exceeds the estimated fair value, an impairment loss is recognized in an amount equal to the excess.

Goodwill - Goodwill represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets resulting from business combinations. The Company evaluates its goodwill for impairment at the reporting unit level, defined as an operating segment or one level below an operating segment, annually as of October 1 or more frequently if impairment indicators arise in accordance with ASC Topic 350. The Company assesses various qualitative factors to determine whether the fair value of a reporting unit may be less than its carrying amount. If a determination is made that, based on the qualitative factors, an impairment does not exist, the Company is not required to perform further testing. If the aforementioned qualitative assessment results in the Company concluding that it is more likely than not that the fair value of a reporting unit may be less than its carrying amount, the fair value of the reporting unit will be determined and compared to its carrying value including goodwill. In determining the fair value of a reporting unit, the Company estimates the fair value of a reporting unit using the fair value derived from the income approach. The market approach estimates fair value based on market multiples of revenue and earnings derived from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit; whereas, the income approach uses a discounted cash flow (“DCF”) model. The DCF model determines the fair value of our reporting units based on projected future discounted cash

CLARIVATE PLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands, except share and per share data)

flows, which in turn were based on our views of uncertain variables such as growth rates, anticipated future economic conditions, and the appropriate discount rates relative to risk and estimates of residual values. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired, and the Company is not required to perform further testing. If the fair value of the reporting unit is less than the carrying value, the Company will recognize the difference as an impairment charge.

Note 12: Pension and Other Post-Retirement Benefits

The components of net periodic benefit cost recognized in other comprehensive loss were as follows:


	Three Months Ended September 30,
	2020		2019
Service cost	$	226	$	220
Interest cost	79		80
Expected return on plan assets	(40)		(40)
Amortization of actuarial gains	(19)		(20)
Net periodic benefit cost	$	246	$	240

	Nine Months Ended September 30,
	2020		2019
Service cost	$	661	$	662
Interest cost	235		238
Expected return on plan assets	(118)		(120)
Amortization of actuarial gains	(57)		(49)
Net periodic benefit cost	$	721	$	731

Interest cost and expected return on plan assets are recorded in Interest expense, net on the accompanying Condensed Consolidated Statements of Operations.

Note 13: Debt

The following is a summary of the Company’s debt:


		September 30, 2020				December 31, 2019
Type	Maturity	Interest Rate		Carrying Value		Interest Rate		Carrying Value
Senior secured notes	2026	4.500	%	700,000		4.500	%	700,000
Term loan facility	2026	3.161	%	1,250,550		5.049	%	900,000
Revolving credit facility	2024	—	%	—		5.049	%	65,000

Total debt outstanding				1,950,550				1,665,000
Deferred financing charges				(24,963)				(25,205)
Term loan facility, discount				(1,994)				(2,184)
Short-term debt, including current portion of long-term debt				(12,600)				(9,000)
Long-term debt, net of current portion and deferred financing charges				$	1,910,993			$	1,628,611

In connection with the DRG acquisition, the Company incurred an incremental $360,000 of borrowings under our term loan facility and used the net proceeds from such borrowings to fund a portion of the DRG acquisition and to pay related fees and expenses. The additional term loan borrowings are covered by the same terms and covenant

CLARIVATE PLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands, except share and per share data)

requirements of the existing term loan facility as described in the annual report on form 10-K as of December 31, 2019.

In addition, the Company secured the backstop of a $950,000 fully committed bridge facility in connection with the DRG acquisition. However, the Company obtained all required financing with proceeds from the additional term loan borrowings and through a primary equity offering in February 2020. As such, the bridge facility remained undrawn through its expiration on closing of the acquisition.

On October 1, 2020, in connection with the CPA Global acquisition, the Company incurred an incremental $1,600,000 of borrowings under our term loan facility and used the net proceeds from such borrowings to fund the repayment of CPA Global's parent company outstanding debt of $2,052,926 of outstanding debt. The additional term loan borrowings are covered by the same terms and covenant requirements of the existing term loan facility as described in the annual report on form 10-K as of December 31, 2019. Previously, the Company had secured the backstop of a $1,500,000 fully committed bridge facility. However, the Company obtained all required financing with proceeds from the additional term loan borrowings and the bridge facility remained undrawn through its expiration on closing of the acquisition. See Note 22 — "Subsequent Events" for additional information regarding the CPA Global acquisition.

During the nine months ended September 30, 2020, the Company paid down $65,000 on the revolving credit facility. The revolving credit facility has remained undrawn in the period subsequent to the pay down. The revolving credit facility is subject to a commitment fee of 0.50% per annum.

With respect to the credit facilities, the Company may be subject to certain maintenance covenants, including compliance with total first lien net leverage ratio, if certain conditions are met. These conditions were not met and the Company was not required to test compliance with these covenants as of September 30, 2020.

The obligations of the Borrowers under the credit facilities are guaranteed by UK Holdco and certain of its restricted subsidiaries and are secured by substantially all of UK Holdco's and certain of its restricted subsidiaries’ assets (with customary exceptions described in the credit facilities). UK Holdco and its restricted subsidiaries are subject to certain covenants including restrictions on UK Holdco’s ability to pay dividends, incur indebtedness, grant a lien over its assets, merge or consolidate, make investments, or make payments to affiliates.

As of September 30, 2020, letters of credit totaling $4,958 were collateralized by the revolving credit facility. Notwithstanding the revolving credit facility, as of September 30, 2020, the Company had cash collateralized letters of credit totaling $37, all of which were not collateralized by the revolving credit facility. The Company’s cash from operations is expected to meet repayment needs on outstanding borrowings for a period of 12 months after the financial statement issuance date.

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 $1,924,197 and $1,692,750 at September 30, 2020 and December 31, 2019, respectively. The debt is considered a Level 2 liability under the fair value hierarchy.

On October 1, 2020, the Company borrowed $60,000 on the existing Revolving Credit Facility and used the net proceeds from such borrowings to fund the debt exinguishment costs in connection with funding of the repayment of CPA Global's parent company outstanding debt. $187,663 remains undrawn subsequent to the borrowing. See Note 22 — "Subsequent Events" for additional information regarding the CPA Global acquisition.

CLARIVATE PLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands, except share and per share data)

Note 14: Revenue

The tables below show the Company's disaggregated revenues for the periods presented:


	Three Months Ended September 30,
	2020		2019
Subscription revenues	$	222,069	$	200,813
Transactional revenues	64,398		42,252
Total revenues, gross	286,467		243,065
Deferred revenues adjustment(1)	(2,107)		(67)
Total revenues, net	$	284,360	$	242,998
(1) Reflects the deferred revenues adjustment as a result of purchase accounting.
	Nine Months Ended September 30,
	2020		2019
Subscription revenues	$	631,873	$	596,052
Transactional revenues	174,000		123,642
Total revenues, gross	805,873		719,694
Deferred revenues adjustment(1)	(7,421)		(362)
Total revenues, net	$	798,452	$	719,332
(1) Reflects the deferred revenues adjustment as a result of purchase accounting.

Contract Balances


	Accounts receivable, net		Current portion of deferred revenues		Non-current portion of deferred revenues
Opening (1/1/2020)	$	333,858	$	407,325	$	19,723
Closing (9/30/2020)	238,638		326,098		24,080
(Increase)/decrease	$	95,220	$	81,227	$	(4,357)

Opening (1/1/2019)	$	331,295	$	391,102	$	17,112
Closing (9/30/2019)	226,997		330,786		21,299
(Increase)/decrease	$	104,298	$	60,316	$	(4,187)

The amount of revenue recognized in the period that were included in the opening deferred revenues current and long-term balances were $339,589. This revenue consists primarily of subscription revenue.

Transaction Price Allocated to the Remaining Performance Obligation

As of September 30, 2020, approximately $48,486 of revenue is expected to be recognized in the future from remaining performance obligations, excluding contracts with durations of one year or less. The Company expects to recognize revenue on approximately 56.0% of these performance obligations over the next 12 months. Of the remaining 44.0%, 26.2% is expected to be recognized within the following year, with the final 17.8% expected to be recognized within years 3 to 10.

CLARIVATE PLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands, except share and per share data)

Note 15: Shareholders’ Equity

Pre-2019 Transaction

In March 2017, the Company formed the Management Incentive Plan under which certain employees of the Company may be eligible to purchase shares of the Company. In exchange for each share purchase subscription, the purchaser is entitled to a fully vested right to an ordinary share. Additionally, along with a subscription, employees receive a corresponding number of options to acquire additional ordinary shares subject to three years vesting. See Note 16 — “Employment and Compensation Arrangements” for additional detail related to the options. The Company received no net subscriptions for the three and nine months ended September 30, 2019.

Post-2019 Transaction

In June 2019, the Company formed the 2019 Incentive Award Plan under which employees of the Company may be eligible to purchase shares of the Company. See Note 16 — “Employment and Compensation Arrangements” for additional detail related to the 2019 Incentive Award Plan. In exchange for each share subscription purchased, the purchaser is entitled to a fully vested right to an ordinary share. At September 30, 2020 there were unlimited ordinary shares authorized, and 389,220,967 shares issued and outstanding, with a par value of $0.00. The Company did not hold any shares as treasury shares as of September 30, 2020 or December 31, 2019. The Company’s ordinary stockholders are entitled to one vote per share.

Warrants

During the period January 1, 2020 through February 21, 2020, 24,132,666 of the Company’s outstanding public warrants were exercised for one ordinary share per whole public warrant at a price of $11.50 per share. On February 20, 2020, we announced the redemption of all of our outstanding public warrants to purchase our ordinary shares that were issued as part of the units sold in the Churchill Capital Corp initial public offering that remained outstanding at 5:00 p.m. New York City time on March 23, 2020, for a redemption price of $0.01 per public warrant. In addition, our board of directors elected that, upon delivery of the notice of the redemption on February 20, 2020, all public warrants were to be exercised only on a “cashless basis.” Accordingly, by virtue of the cashless exercise of public warrants, exercising public warrant holders received 0.4626 of an ordinary share for each public warrant, and 4,747,432 ordinary shares were issued for public warrants exercised on a cashless basis and 4,649 public warrants were redeemed for $0.01 per public warrant. As of September 30, 2020, no public warrants were outstanding.

Merger Shares

On January 31, 2020, our Board agreed to waive all performance vesting conditions associated with the Merger Shares (as defined below). The Merger Shares were issued as ordinary shares to persons designated by Jerre Stead and Michael Klein on June 1, 2020 as part of the June 2020 underwritten public offering. See Note 16 — “Employment and Compensation Arrangements” for additional detail related to the Merger Shares.

DRG Acquisition Shares

In connection with the DRG acquisition, up to 2,895,638 ordinary shares of the Company are issuable to PEL following the one-year anniversary of the closing. See Note 4 — “Business Combinations” for additional details.

CPA Global Acquisition Shares

In connection with the CPA Global acquisition, on October 1, 2020, the Company issued as part of the purchase consideration, 216,683,778 ordinary shares of the Company. See Note 22 — "Subsequent Events" for additional information regarding the CPA Global acquisition.

Note 16: Employment and Compensation Arrangements

Employee Incentive Plans

The 2019 Incentive Award Plan permits the granting of awards in the form of incentive stock options, non-qualified stock options, share appreciation rights, restricted shares, restricted share units and other stock-based or cash based awards. Equity awards may be issued in the form of restricted shares or restricted share units with dividend rights or dividend equivalent rights subject to vesting terms and conditions specified in individual award agreements. The Company’s Management Incentive Plan provides for employees of the Company to be eligible to purchase shares of the Company. See Note 15 — “Shareholders’ Equity” for additional information.

CLARIVATE PLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands, except share and per share data)

A maximum aggregate amount of 60,000,000 ordinary shares are reserved for issuance under the 2019 Incentive Award Plan. Equity awards under the 2019 Incentive Award Plan may be issued in the form of options to purchase shares of the Company which are exercisable upon the occurrence of conditions specified within individual award agreements. As of September 30, 2020, 42,915,870 awards had been granted.

A summary of the Company’s share-based compensation is as follows:


	Three Months Ended September 30,
	2020		2019
Share-based compensation expense	$	6,796	$	9,567
Tax benefit recognized	$	—	$	45

	Nine Months Ended September 30,
	2020		2019
Share-based compensation expense	$	31,121	$	46,675
Tax benefit recognized	$	—	$	201

In the nine months ended September 30, 2020, the Company recognized additional Share-based compensation expense related to the modification of certain awards under the 2019 Incentive Award Plan. As of September 30, 2020, there was $24,577 of total unrecognized compensation cost, related to outstanding stock options and awards, which is expected to be recognized through 2024 with a remaining weighted-average service period of 1.0 year.

Stock Options

The Company’s stock option activity is summarized below:


	Number of Options	Weighted Average Exercise Price per Share		Weighted-Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
Outstanding at December 31, 2019	20,880,225	$	12.18	7.3	$	105,119

Expired	(3,964)	29.33		0	—
Forfeited	(877,643)	12.05		0	—
Exercised	(11,507,094)	11.64		0	—
Outstanding as of September 30, 2020	8,491,524	12.91		6.4	153,700
Vested and exercisable at September 30, 2020	4,346,792	$	12.91	5.5	$	78,626

The aggregate intrinsic value in the table above represents the difference between the closing price of the Company's ordinary shares on September 30, 2020 and the exercise price of each in-the-money option. In the three and nine months ended September 30, 2020, 4,068,307 and 11,507,094 stock options were exercised, respectively. The tax benefit from the exercised options in the three and nine months ended September 30, 2020 was $314 and $1,652, respectively.

The Company accounts for awards issued under the 2019 Incentive Award Plan as additional contributions to equity. Share-based compensation includes expense associated with stock option grants which is estimated based on the grant date fair value of the award issued. Share-based compensation expense related to stock options is recognized over the vesting period of the award which is generally five years, on a graded-scale basis.

The Company uses the Black-Scholes option pricing model to estimate the fair value of options granted. The Black-Scholes model takes into account the fair value of an ordinary share and the contractual and expected term of the stock option, expected volatility, dividend yield, and risk-free interest rate. Prior to becoming a public company, the fair value of the Company’s ordinary shares were determined utilizing an external third-party pricing specialist.

The contractual term of the option ranges from the one year to 10 years. Expected volatility is the average volatility over the expected terms of comparable public entities from the same industry. The risk-free interest rate is based on a treasury rate with a remaining term similar to the contractual term of the option. The Company is recently formed and at this time does not expect to distribute any dividends. The Company recognizes forfeitures as they occur.

CLARIVATE PLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands, except share and per share data)

Restricted Stock Units (“RSUs”)

RSUs typically vest from one to three years and are generally subject to either cliff vesting or graded vesting. RSUs do not have nonforfeitable rights to dividends or dividend equivalents. The fair value of RSUs is typically based on the fair value of our ordinary shares on grant date. We amortize the value of these awards to expense over the vesting period on a graded-scale basis. The Company recognizes forfeitures as they occur.


	Number of Shares	Weighted Average Grant Date Fair Value per Share
Outstanding as of December 31, 2019	293,182	$	16.75
Granted	1,519,709	20.65
Vested	(174,829)	17.14
Forfeited	(35,921)	20.53
Outstanding as of September 30, 2020	1,602,141	$	19.30

The total grant date fair value of RSUs that vested during the three and nine months ended September 30, 2020 was $76 and $2,996, respectively.

Performance Stock Units (“PSUs”)

The Company began granting PSUs to certain members of management on April 1, 2020 under the 2019 Incentive Award Plan. PSUs typically vest over three years and are subject to performance conditions for vesting. The fair value of the PSUs is based on the fair value of our ordinary shares on the date of grant and valued using a Monte Carlo simulation. In years one and two of the three yeaXr vesting period, it was not possible to predict the likelihood of achieving the target and therefore, the performance condition was deemed not probable as of September 30, 2020. Accordingly, no compensation expense was recognized for the three and nine months ended September 30, 2020.


	Number of Shares	Weighted Average Grant Date Fair Value per Share
Outstanding as of December 31, 2019	—	$	—
Granted	582,217	22.51


Outstanding as of September 30, 2020	582,217	$	22.51

2019 Transaction Related Awards

Upon consummation of the 2019 Transaction, there were 7,000,000 ordinary shares of Clarivate (the "Merger Shares") issuable if the last sale price of Clarivate’s ordinary shares is at least $20.00 for 40 days over a 60 consecutive trading day period on or before the sixth anniversary of the closing of the 2019 Transaction. In accordance with the terms of the Sponsor Agreement and in connection with our merger with Churchill in 2019, the Merger Shares were issued to persons designated by Messrs. Stead and Klein. On January 31, 2020, our Board agreed to waive the performance vesting condition, and the Merger Shares became issuable on or prior to December 31, 2020 to persons designated by Messrs. Stead and Klein. We engaged a third party specialist to fair value the awards at the modification date using the Monte Carlo simulation approach. The assumptions in the model included, but were not limited to, risk-free interest rate, 1.33%; expected volatility of the Company's and its peer group's stock prices, 20.00%; and dividend yield, 0.00%. The Company has evaluated and recorded additional stock compensation expense as required upon the assignment of Merger Shares as applicable. The Merger Shares were issued as ordinary shares to persons designated by Jerre Stead and Michael Klein on June 1, 2020 as part of the June 2020 underwritten public offering. The Company recognized $0 and $13,720 of expense in the three and nine months ended September 30, 2020, respectively, in Share-based compensation expense as a result of the waived performance vesting conditions.

The Sponsor Agreement provided that certain ordinary shares of Clarivate available for distribution to persons designated in the Sponsor Agreement in connection with the Transactions, and certain Clarivate warrants available for distribution to such persons, in each case, were subject to certain time and performance-based vesting provisions described below.

CLARIVATE PLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands, except share and per share data)

The vesting conditions added to certain ordinary shares included the following:

5,309,713 ordinary shares of Clarivate held by persons designated in the Sponsor Agreement, will vest in three equal annual installments on the first, second and third anniversaries of the closing of the Transactions, respectively, and are not contingent on continuing or future service of the respective holders to the Company.

2,654,856 ordinary shares of Clarivate held by such persons will vest at such time as the last sale price of Clarivate's ordinary shares is at least $15.25 on or before the date that is 42 months after the closing of the Transactions; provided that none of such Clarivate ordinary shares will vest prior to the first anniversary of the closing of the transactions, not more than 1/3 of such Clarivate ordinary shares will vest prior to the second anniversary of the closing of the Transactions, and not more than 2/3 of such Clarivate ordinary shares will vest prior to the third anniversary of the closing of the Transactions. Further, such vesting is not contingent on continuing or future service of the respective holders to the Company.

2,654,856 ordinary shares of Clarivate held by such persons will vest at such time as the last sale price of Clarivate's ordinary shares is at least $17.50 on or before the fifth anniversary of the closing of the Transactions; provided that none of such Clarivate ordinary shares will vest prior to the first anniversary of the closing of the Transactions, not more than 1/3 of such Clarivate ordinary shares will vest prior to the second anniversary of the closing of the Transactions, and not more than 2/3 of such Clarivate ordinary shares will vest prior to the third anniversary of the closing of the Transactions. Further, such vesting is not contingent on continuing or future service of the respective holders to the Company.

The vesting conditions added to certain warrants include the following:

17,265,826 of certain warrants held by persons designated in the Sponsor Agreement, will vest at such time as the last sale price of Clarivate's ordinary shares is at least $17.50 on or before the fifth anniversary of the closing of the 2019 Transaction; provided that none of such Clarivate warrants will vest prior to the first anniversary of the closing of the 2019 Transaction, not more than 1/3 of such Clarivate warrants will vest prior to the second anniversary of the

closing of the 2019 Transaction, and not more than 2/3 of such Clarivate warrants will vest prior to the third anniversary of the closing of the 2019 Transaction. Further, such vesting is not contingent on continuing or future service of the respective holders to the Company.

In considering the terms of the transaction related awards, the Company notes that the time-based vesting restrictions are not conditioned on any continuing or future service of the holders to the Company and reflect “lockup” periods of the issuable shares. Further, the above-mentioned performance-based restrictions are considered market conditions pursuant to ASC 718, and are contemplated in the value of the awards. As such vesting restrictions were contemplated in conjunction with the granting of Merger Shares, the Company considered such terms of the total basket of transaction awards in determination of the fair value of the awards. As no continued or future service is required by the holders of such awards, the Company recognized compensation expense based on the fair value of such awards upon closing of the 2019 Transaction. The Company recognized $25,013 expense, net in Share-based compensation expense as of the date of the 2019 Transaction in accordance with the issuance of Merger Shares offset by the addition of vesting terms to certain ordinary shares and warrants, as described above. The expense includes the increases in value of $48,102 for the granting of Merger Shares, the increase in value of $1,193 for ordinary shares with only time vesting conditions, and the increase in value of shares purchased by the Founders immediately prior to the transaction of $4,411, all offset by the reduction in value of $9,396 for ordinary shares with performance vesting condition of $15.25, the reduction in value of $13,101 for ordinary shares with performance vesting condition of $17.50 and the reduction in value of $6,297 related to warrants. Pursuant to the Sponsor Agreement, certain founders of Churchill Capital Corp purchased an aggregate of 1,500,000 shares of Class

B common stock of Churchill immediately prior to the closing of the 2019 Transaction for an aggregate purchase price of $15,000.

We used a third-party specialist to fair value the awards at the Transactions close date of May 13, 2019 using the Monte Carlo simulation approach. The assumptions included in the model include, but are not limited to, risk-free interest rate, 2.20%; expected volatility of the Company's and the peer group's stock prices, 20.00%; and dividend yield, 0%. A discount for lack of marketability (“DLOM”) was applied to shares that are subject to remaining post vesting lock up restrictions. The DLOM was between 3% to 7%, dependent on the length of the post vesting restriction period.

CLARIVATE PLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands, except share and per share data)

On August 14, 2019, Clarivate (on its behalf and on behalf of its subsidiaries) agreed to waive the performance and time vesting conditions, described above, subject to the consummation of the secondary offering. These shares and warrants nevertheless remain subject to a lock-up for a period ranging from two to three years following the closing of the Mergers. We used a third-party specialist to fair value the awards at the modification date using the Monte Carlo simulation approach. The assumptions included in the model include, but are not limited to, risk-free interest rate, 1.42%; expected volatility of the Company's and the peer group's stock prices, 20.00%; and dividend yield, 0%. A DLOM was applied to shares that are subject to remaining post vesting lock up restrictions. The DLOM was between 3% to 7%, dependent on the length of the post vesting restriction period. Waiving the performance and time vesting conditions resulted in an immaterial impact to the Interim condensed Consolidated Statements of Operations.

Note 17: Income Taxes

During the three months ended September 30, 2020 and 2019, the Company recognized an income tax provision of $4,325 on loss before income tax of $32,908 and an income tax provision of $1,644 on income before income tax of $12,475, respectively. During the nine months ended September 30, 2020 and 2019, the Company recognized an income tax provision of $13,693 on loss before income tax of $99,032 and an income tax provision of $5,596 on loss before income tax of $120,594, respectively. The tax provision in each of the three and nine months ended September 30, 2020 and the three and nine months ended September 30, 2019, respectively, reflects the mix of taxing jurisdictions in which pre-tax profits and losses were recognized.

Note 18: Earnings per Share

Potential ordinary shares of 31,871,520 of Private Placement Warrants, DRG Transaction Shares, options, RSUs, and PSUs related to the 2019 Incentive Award Plan were excluded from diluted EPS for the three and nine months ended September 30, 2020, respectively, as the Company had a net loss and their inclusion would have been anti-dilutive or their performance metric was not met. Potential ordinary shares of 9,713,683 related to Merger Shares and options related to the 2019 Incentive Award Plan were excluded from diluted EPS for the three months ended September 30, 2019 as their inclusion would have been anti-dilutive or their performance metric was not met. Potential ordinary shares of 82,756,452 related to Private Placement Warrants, Public Warrants, Merger Shares and options related to the 2019 Incentive Award Plan were excluded from diluted EPS for the nine months ended September 30, 2019, as the Company had a net loss and their inclusion would have been anti-dilutive or their performance metric was not met. See Note 15 — "Shareholders' Equity" and Note 16 — "Employment and Compensation Arrangements” for a description.

The 2019 Transaction was accounted for as a reverse recapitalization in accordance with U.S. GAAP. See Note 1 — "Background and Nature of Operations". Accordingly, weighted-average shares outstanding for purposes of the EPS calculation have been retroactively recasted as shares reflecting the exchange ratio established in the 2019 Transaction (1.0 Jersey share to 132.13667 Clarivate shares).

The basic and diluted EPS computations for our ordinary shares are calculated as follows (in thousands, except share and per share amounts):


	Three Months Ended September 30,
	2020		2019
Basic/Diluted EPS
Net income (loss) available to ordinary shareholders	$	(37,233)	$	10,831



Basic weighted-average number of ordinary shares outstanding	387,845,438		305,428,062
Diluted weighted-average number of ordinary shares outstanding	387,845,438		328,854,063

Basic EPS	$	(0.10)	$	0.04
Diluted EPS	$	(0.10)	$	0.03

CLARIVATE PLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands, except share and per share data)


	Nine Months Ended September 30,
	2020		2019
Basic/Diluted EPS
Net loss available to ordinary shareholders	$	(112,725)	$	(126,190)



Basic and diluted weighted-average number of ordinary shares outstanding	369,019,802		262,894,388


Basic and diluted EPS	$	(0.31)	$	(0.48)

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 include, but are not limited to, 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. Based on information currently known to the Company and after consultation with outside legal counsel, management believes that the ultimate resolution of any such matters, individually or in the aggregate, will not have a material impact on the Company’s financial condition taken as a whole.

Contingent Liabilities

In conjunction with the acquisition of Publons, the Company agreed to pay former shareholders up to an additional $9,500 through 2020. Amounts payable are contingent upon Publons' achievement of certain milestones and performance metrics. The Company paid $0 of the contingent purchase price during the nine months ended September 30, 2020. The Company had an outstanding liability for $3,701 and $3,100 related to the estimated fair value of this contingent consideration included in Accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019, respectively.

In conjunction with the acquisition of Kopernio, the Company paid former shareholders $2,184 during the nine months ended September 30, 2020 due to the achievement of certain milestones and performance metrics.

In conjunction with the acquisition of TrademarkVision, the Company agreed to pay former shareholders a potential earn-out dependent upon achievement of certain milestones and financial performance metrics through 2020. Amounts payable are contingent upon TrademarkVision’s achievement of certain milestones and performance metrics. During the nine months ended September 30, 2020, the Company paid $8,000 of the contingent purchase price to complete the earn-out. As of September 30, 2020 and December 31, 2019, the Company had an outstanding liability for $0 and $8,000, respectively, related to the estimated fair value of this contingent consideration. The outstanding balance was included in Accrued expenses and other current liabilities as of December 31, 2019, in the Condensed Consolidated Balance Sheets.

In conjunction with the acquisition of DRG, the Company agreed to pay up to 2,895,638 shares as contingent stock consideration, valued at $58,897 on the closing date of the acquisition. See Note 4 — "Business Combinations" for more information on the contingent stock consideration. Amounts payable are contingent upon any indemnity losses or claims to indemnity losses occurring within that one-year period. The liability increased by $30,839 during the nine months ended September 30, 2020 due to an increase in the estimated fair value of this contingent stock consideration, which resulted in a liability of $89,736 as of September 30, 2020. The outstanding balance was included in Accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets as of September 30, 2020.

Note 20: Related Party and Former Parent Transactions

Onex Partners Advisor LP (“Onex”), an affiliate of the Company, is considered a related party. Concurrent with the Acquisition, the Company entered into a Consulting Services Agreement with Onex, pursuant to which the

CLARIVATE PLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands, except share and per share data)

Company is provided certain ongoing strategic and financing consulting services in exchange for a quarterly management fee. In connection with this agreement, the Company incurred $0 and $30 for the three months ended September 30, 2020, and 2019, respectively, and $0 and $419 for the nine months ended September 30, 2020 and 2019, respectively. The Company paid 0.1% interest per annum to Onex for the Credit Agreement. The Company incurred $0 and $223 for the three months ended September 30, 2020 and 2019, respectively, and $0 and $327 for the nine months ended September 30, 2020 and 2019 in interest expense for the Onex related interest. The Company had an outstanding liability of $6 and $3 to Onex as of September 30, 2020, and December 31, 2019, respectively. In addition, the Company paid Onex a management fee of $5,400 in connection with the 2019 Transaction in the second quarter of 2019. See Note 4 — "Business Combinations" for additional information.

BPEA, an affiliate of the Company, is considered a related party. Concurrently with our separation from Thomson Reuters ("Former Parent") in 2016, the Company entered into a Management Services Agreement with Baring, pursuant to which the Company is provided certain ongoing strategic and financing consulting services. In connection with this agreement, the Company recognized $0 for the three months ended September 30, 2020 and 2019, and $0 and $246 for the nine months ended September 30, 2020, and 2019, respectively, in operating expenses related to this agreement. The Company had an outstanding liability of $0 to Baring as of September 30, 2020, and December 31, 2019. In addition, the Company paid BPEA a management fee of $2,100 in connection with the 2019 Transaction in the second quarter of 2019. See Note 4 — "Business Combinations" for additional information.

In connection with our separation from Thomson Reuters in 2016, Bidco and a subsidiary of the Former Parent entered into the Transition Service Agreement, which became effective on October 3, 2016, pursuant to which such subsidiary of the Former Parent will, or will cause its affiliates and/or third-party service providers to, provide Bidco, its affiliates and/or third-party service providers with certain technology, facilities management, human resources, sourcing, financial, accounting, data management, marketing and other services to support the operation of the IP&S business as an independent company. Such services are provided by such subsidiary of the Former Parent or its affiliates and/or third-party service providers for various time periods and at various costs based upon the terms set forth in the Transition Service Agreement. Since September 2019 the company has not incurred fees from the Transaction Service agreement with Thomson Reuters.

A controlled affiliate of Baring is a vendor of ours. Total payments to this vendor were $227 and $126 for the three months ended September 30, 2020 and 2019, respectively, and $400 and $444 for the nine months ended September 30, 2020 and 2019, respectively. The Company had an outstanding liability of $125 and $160 as of September 30, 2020 and December 31, 2019, respectively.

Jerre Stead, Chief Executive Officer of the Company, is the Co-founder of a vendor of ours. Total payments to this vendor were $0 and $481 for the three months ended September 30, 2020 and 2019, respectively, and $0 and $481 for the nine months ended September 30, 2020 and 2019 respectively. The Company had an outstanding liability of $0 and $10 as of September 30, 2020 and December 31, 2019, respectively. This vendor was not a related party during the three and nine months ended September 30, 2020.

A former member of our key management is the Co-founder of a vendor of ours. Total payments to this vendor were $0 for the three months ended September 30, 2020 and 2019 and $0 and $278 for the nine months ended September 30, 2020 and 2019, respectively, and the Company had no outstanding liability as of September 30, 2020 and December 31, 2019. This vendor was not a related party during the nine months ended September 30, 2019.

One of our independent directors has an immediate family member who is a member of management within one of Clarivate’s customers. Total revenue from the Customer was $546 and $19 for the three months ended September 30, 2020 and 2019, respectively, and $1,075 and $28 for the nine months ended September 30, 2020 and 2019, respectively, and the Company had $0 and $4 outstanding receivables as of September 30, 2020 and December 31, 2019, respectively.

Note 21: Restructuring

The restructuring charges for the plans noted below were recognized in accordance with ASC 420, Exit or Disposal Cost Obligations or ASC 712, Compensation – Nonretirement Postemployment Benefits, as applicable. Liabilities were recognized in accordance with ASC 420 when the programs were approved, the employees to be terminated were identified, the terms of the arrangement were established, it was determined changes to the plan were unlikely to occur and the arrangements were communicated to employees. Liabilities for nonretirement postemployment benefits that fall under ASC 712 were recognized when the severance liability was determined to be probable of

CLARIVATE PLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands, except share and per share data)

being paid and reasonably estimable. The liabilities are recorded within Accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets. The corresponding expenses are recorded within Restructuring and impairment in the Quarterly Condensed Consolidated Statements of Operations. The payments associated with these actions are expected to be completed within 12 months from the balance sheet date.

Operation Simplification and Optimization Program

During the fourth quarter of 2019, the Company approved restructuring actions designed to streamline our operations by simplifying our organization and focusing on two product groups in planned phases. The following table summarizes the activity related to the restructuring reserves for the Operation Simplification and Optimization Program:








Operation Simplification and Optimization Program	Severance and Related Benefit Costs		Costs Associated with Exit and Disposal Costs (1)		Total
Reserve Balance as of December 31, 2019	$	9,506	$	—	$	9,506
Expenses recorded	6,574		1,180		7,754
Payments made	(6,647)		—		(6,647)

Reserve Balance as of March 31, 2020	9,433		1,180		10,613
Expenses recorded	4,865		2,749		7,614
Payments made	(4,297)		(199)		(4,496)
Reserve Balance as of June 30, 2020	10,001		3,730		13,731
Expenses recorded	472		1,361		1,833
Payments made	(2,939)		(2,448)		(5,387)
Reserve Balance as of September 30, 2020	$	7,534	$	2,643	$	10,177

(1) Relates primarily to location exit costs, legal and advisory fees.

The following table is a summary of charges incurred related to the Operation Simplification and Optimization Program in the three and nine months ended September 30, 2020.


	Three Months Ended September 30,
	2020		2019
Severance and related benefit costs	$	472	$	—
Costs associated with exit and disposal activities(1)	506		—
Costs associated with lease exit costs including impairment	855		—
Total	$	1,833	$	—

	Nine Months Ended September 30,
	2020		2019
Severance and related benefit costs	$	11,911	$	—
Costs associated with exit and disposal activities(1)	4,435		—
Costs associated with lease exit costs including impairment(2)	5,763		—
Total	$	22,109	$	—
(1) Relates primarily to contract exit costs, legal and advisory fees.
(2) Includes $4,880 of charges related to impairment of leases and $882 of lease exit costs.

DRG Acquisition Integration Program

CLARIVATE PLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands, except share and per share data)

During the second quarter of 2020, the Company approved restructuring actions designed to eliminate duplicative costs following the acquisition of DRG in planned phases. The following table summarizes the activity related to the restructuring reserves for the DRG Acquisition Integration:


DRG Acquisition Integration	Severance and Related Benefit Costs		Costs Associated with Exit and Disposal Costs(1)		Total
Reserve balance as of December 31, 2019	$	—	$	—	$	—
Expenses recorded	3,312		12		3,324
Payments made	(1,252)		—		(1,252)
Reserve balance as of June 30, 2020	2,060		12		2,072
Expenses recorded	1,210		149		1,359
Payments made	(1,013)		(144)		(1,157)
Reserve balance as of September 30, 2020	$	2,257	$	17	$	2,274

(1) Relates primarily to lease exit costs and legal and advisory fees.

The following table is a summary of charges incurred related to the DRG Acquisition Integration in the three and nine months ended September 30, 2020.


	Three Months Ended September 30
	2020
Severance and related benefit costs	$	1,210
Costs associated with exit and disposal activities(1)	149
Total	$	1,359

	Nine Months Ended September 30,
	2020
Severance and related benefit costs	$	4,522
Costs associated with exit and disposal activities(1)	161
Total	$	4,683
(1) Relates primary to lease exit costs and legal and advisory fees.

Note 22: Subsequent Events

On October 1, 2020, the Company completed the previously announced combination with CPA Global, a global leader in intellectual property software and tech-enabled services. Clarivate acquired all of the outstanding shares of CPA Global in a cash and stock transaction. The aggregate consideration in connection with the closing of the CPA Global acquisition was $8,722,563, net of $91,878 cash acquired and including an equity holdback consideration of $46,485. The aggregate consideration was comprised of (i) $6,761,515 from the issuance of up to 218,183,778 ordinary shares to Redtop Holdings Limited, a portfolio company of Leonard Green & Partners, L.P., representing approximately 35% pro forma fully diluted ownership of Clarivate and (ii) approximately $2,052,926 in cash to fund the repayment of CPA Global's parent company outstanding debt. Of the 218,306,663 ordinary shares issuable in the acquisition, Clarivate issued 216,683,778 ordinary shares as of October 1, 2020.

CLARIVATE PLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands, except share and per share data)


Issuance of 218,183,778 shares	$	6,761,515
Cash paid for repayment CPA Global's parent company debt	2,052,926
Total purchase price	8,814,441
Cash acquired	(91,878)
Total purchase price, net of cash acquired	$	8,722,563

The Company recorded costs related to the CPA Global combination within Transaction expense in the Quarterly Condensed Consolidated Statements of Operations during three and nine months ended September 30, 2020, as follows:


Accounting and legal fees	$	8,493
Other	290
Total	$	8,783

On October 1, 2020, in connection with the CPA Global acquisition, the Company incurred an incremental $1,600,000 of borrowings under our term loan facility and used the net proceeds from such borrowings to fund a portion of the repayment of CPA Global's $2,052,926 of outstanding debt. The Company borrowed $60,000 on the existing Revolving Credit Facility and used the net proceeds from such borrowings to fund the debt extinguishment costs in connection with funding of the repayment of CPA Global's outstanding debt. $187,663 remains undrawn subsequent to the borrowing.

On August 12, 2020, the company entered into an agreement pursuant to which, on October 26, 2020, it acquired control of Beijing IncoPat Technology Co., Ltd. (“IncoPat”), a leading patent information service provider in China via cash on hand. IncoPat is complementary to Clarivate’s intellectual property portfolio. The Company will consolidate the financial results of IncoPat beginning in the fourth quarter of 2020.

CLARIVATE PLC

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

(Amounts in thousands, except share and per share data, option price amounts, 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 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 and Intellectual Property (“IP”) Product Groups. Our Science Product Group consists of our Web of Science and Life Science Product Lines, and our IP Product Group consists of our Derwent, CompuMark and MarkMonitor 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 pre-clinical research, competitive intelligence, regulatory information and clinical trials. Our Derwent 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 CompuMark products and services allow businesses and legal professionals to access our comprehensive trademark database. Finally, our MarkMonitor offerings include enterprise web domain portfolio management products and services.

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 Decision Resources Group

February Offering

In February 2020, we completed an underwritten public offering of 27,600,000 of our ordinary shares, generating proceeds of $540,736, which we used to fund a portion of the cash consideration for the DRG acquisition. In addition, we incurred an incremental $360,000 of term loans under our term loan facility and used the net proceeds from such borrowings, together with cash on hand, to fund the remainder of the cash consideration for the DRG

CLARIVATE PLC

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

(Amounts in thousands, except per share and per share data, option price amounts, ratios or as noted)

acquisition and to pay related fees and expenses. As a result of the additional term loan, we had $1,250,550 outstanding on our term loan facility at September 30, 2020.

Acquisition of CPA Global

On October 1, 2020, the Company completed the previously announced combination with CPA Global, a global leader in intellectual property software and tech-enabled services. Clarivate acquired all of the outstanding shares of CPA Global in a cash and stock transaction. The aggregate consideration in connection with the closing of the CPA Global acquisition was $8,722,563, net of $91,878 cash acquired, including an equity holdback consideration of $46,485. The aggregate consideration was comprised of (i) $6,761,515 from the issuance of up to 218,183,778 ordinary shares to Redtop Holdings Limited, a portfolio company of Leonard Green & Partners, L.P., representing approximately 35% pro forma fully diluted ownership of Clarivate and (ii) approximately $2,052,926 in cash to fund the repayment of CPA Global's parent company outstanding debt. Of the 218,306,663 ordinary shares issuable in the acquisition, Clarivate issued 216,683,778 ordinary shares as of October 1, 2020.

In conjunction with the closing of the combination, the Company incurred an incremental $1,600,000 of term loans under our term loan facility and used the net proceeds from such borrowings, together with cash on hand, to fund the transaction.

MarkMonitor Brand Protection, Antipiracy and Antifraud Disposition

In November 2019, we entered into an agreement with an unrelated third-party for the sale of certain assets and liabilities of our MarkMonitor Product Line within the IP Group. The divestment closed in January 2020 for a consideration of approximately $3,751. An impairment charge of $18,431 was recognized in the Statement of Operations during the fourth quarter of 2019 to reduce the Assets Held for Sale to their fair value. Accordingly, we recorded an immaterial loss on the divestiture during the nine months ended September 30, 2020.

Disposition of Certain Non-core Assets and Liabilities

As of September 30, 2020, the Company began the process of negotiating an agreement for the sale of certain non-core assets and liabilities. As of September 30, 2020, the assets and liabilities related to the divestment met the criteria for classification as Assets held for sale on the Company’s Balance Sheet. In anticipation of the sale, current assets of $15,958 and Long term assets of $20,101 were reclassified to Current assets held for sale, while Current liabilities of $24,650 and Long term liabilities of $398 were reclassified to Current liabilities held for sale.

Restructuring

Operation Simplification and Optimization Program

During the fourth quarter of 2019, the Company approved restructuring actions designed to streamline our operations by simplifying our organization and focusing on two product groups in planned phases. As a result of these actions, the Company expects to record total pre-tax restructuring charges of approximately $49,000 for all phases of the program. Approximately $33,000 of costs have been incurred to date under the program and a total remaining of approximately $16,000 are expected to be incurred in 2020. This estimate includes approximately $4,000 for severance related charges and approximately $12,000 of estimated maximum lease exit costs, assuming no sublease agreements are entered into.

During the three and nine months ended September 30, 2020, the Company recorded pre-tax charges of $1,833 and $22,109, respectively, recognized within Restructuring and impairment in the Condensed Consolidated Statement of Operations comprised of $855 and $5,763 of lease impairment and location exit costs, $506 and $4,435 of contract exit costs and legal and advisory fees and $472 and $11,911 of severance and related benefit costs, respectively.

DRG Acquisition Integration Program

CLARIVATE PLC

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

(Amounts in thousands, except per share and per share data, option price amounts, ratios or as noted)

During the second quarter of 2020, the Company approved restructuring actions designed to eliminate duplicative costs following the acquisition of DRG in planned phases. As a result of these actions, the company expects to record total pre-tax restructuring charges of approximately $14,800 for all phases of the program. Approximately $10,800 of costs have been incurred to date under the program and $4,000 are expected to be incurred for all phases associated with this charge which is expected to be substantially complete in 2020. This estimate includes approximately $0 for severance related charges and approximately $4,000 of estimated maximum lease exit costs, assuming no sublease agreements are entered into.

During the three and nine months ended September 30, 2020, the Company recorded pre-tax charges of $1,359 and $4,683, respectively, recognized in Restructuring and impairment in the Condensed Consolidated Statement of Operations comprised of $149 and $161 of asset related charges and $1,210 and $4,522 of severance and related benefit costs.

June Ordinary Share Offering

In June 2020, we completed an underwritten public offering of 50,400,000 of our ordinary shares (including 2,400,000 ordinary shares pursuant to the underwriters' option to purchase up to an additional 7,200,000 ordinary shares from certain selling shareholders) at a share price of $22.50. Of the 50,400,000 ordinary shares, 14,000,000 ordinary shares were offered by Clarivate and 36,400,000 ordinary shares were offered by selling shareholders, including 20,821,765 ordinary shares from Onex, 8,097,354 ordinary shares from Baring and 7,480,881 ordinary shares from Directors, Executive Officers and other shareholders. The underwriters' option to purchase the remaining 4,800,000 ordinary shares from certain selling shareholders expired on July 3, 2020.

The Company received approximately $304,030 in net proceeds from the sale of ordinary shares offered by the Company, after deducting underwriting discounts and estimated offering expenses payable. We used the net proceeds, in conjunction with the new $1,600,000 incremental term loan facility available to Clarivate on October 1, 2020, to fund the repayment of CPA Global's $2,052,926 of outstanding debt. The Company did not receive any proceeds from the secondary ordinary shares sold by the selling shareholders.

Key Components of Our Results of Operations

Revenues, net

We categorize our revenues into two categories: subscription and transactional.

Subscription-based revenues are recurring revenues that are earned under annual, multi-year, or evergreen contracts, pursuant to which we license the right to use our products to our customers. Revenues from the sale of subscription data and analytics solutions are typically invoiced annually in advance and recognized ratably over the year as revenues are earned. Subscription revenues are driven by annual revenue renewal rates, new subscription business, price increases on existing subscription business and subscription upgrades and downgrades from recurring customers. Substantially all of our historical deferred revenues purchase accounting adjustments are related to subscription revenues.

Transactional 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 products and services are invoiced according to the terms of the contract, typically in arrears. Transactional content revenues are usually delivered to the customer instantly or in a short period of time, at which time revenues are recognized. Transactional revenues also include, to a lesser extent, professional services, which are typically performed under contracts that vary in length from several months to years for multi-year projects and are typically invoiced based on the achievement of milestones. The most significant components of our transactional revenues include our “clearance searching” and “backfiles” products.

Cost of Revenues, Excluding Depreciation and Amortization

Cost of revenues consists of costs related to the production, servicing and maintenance of our products and are comprised primarily of related personnel costs, such as salaries, benefits and bonuses for employees, fees for contracted labor, and data center services and licensing costs. Cost of revenues also includes the costs to acquire or produce content, royalties payable and non-capitalized R&D expenses. Cost of revenues does not include production costs related to internally generated software, which are capitalized.

CLARIVATE PLC

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

(Amounts in thousands, except share and per share data, option price amounts, ratios or as noted)

Selling, General and Administrative, Excluding Depreciation and Amortization

Selling, general and administrative costs consist primarily of salaries, benefits, commission and bonuses for the executive, finance and accounting, human resources, administrative, sales and marketing personnel, third-party professional services fees, such as legal and accounting expenses, facilities rent and utilities and technology costs associated with our corporate infrastructure.

Share-based Compensation

Share-based compensation expense includes costs associated with stock awards granted to and certain modifications for certain members of management and expense related to the issuance of shares in connection with our merger with Churchill Capital Corp in 2019.

Depreciation

Depreciation expense relates to our fixed assets, including mainly computer hardware and leasehold improvements, furniture and fixtures. These assets are depreciated over their expected useful lives, and in the case of leasehold improvements over the shorter of their useful life or the duration of the related lease.

Amortization

Amortization expense relates to our finite-lived intangible assets, including mainly databases and content, customer relationships, internally generated computer software and trade names. These assets are amortized over periods of between two and 20 years. Definite-lived intangible assets are tested for impairment when indicators are present, and, if impaired, are written down to fair value based on discounted cash flows. No impairment of intangible assets has been identified during any financial period included in our accompanying unaudited Condensed Consolidated Financial Statements.

Transaction Expenses

Transaction expenses are incurred to complete business combination transactions, including costs incurred to complete business combination transactions, including acquisitions, dispositions and capital market activities and include advisory, legal, and other professional and consulting costs.

Transition, Integration and Other Related Expenses

Transition, integration and other related expenses, including transformation expenses, mainly reflect the costs of transitioning certain activities performed under the transition services agreement by Thomson Reuters and certain consulting costs related to standing up our back-office systems to enable our operation on a stand-alone basis. These costs include labor costs of full time employees currently working on migration projects, including primarily employees whose labor costs are capitalized in other circumstances (such as employees working on application development). In 2019, these costs also relate to the Company's transition expenses incurred following the merger with Churchill Capital Corp.

Restructuring and Impairment

Restructuring expense includes costs associated with involuntary termination benefits provided to employees under the terms of a one-time or ongoing benefit arrangements, certain contract termination costs, and other costs associated with an exit or disposal activity.

Legal Settlement

Legal settlement represents a net gain recorded for cash received in relation to closure of a confidential legal matter.

Other Operating Income (Expense), Net

Other operating income (expense), net consists of gains or losses related to legal settlements and the disposal of our assets, asset impairments or write-downs and the consolidated impact of re-measurement of the assets and liabilities of our company, sublease income, gain recognized on foreign exchange contract settlement and our subsidiaries that are denominated in currencies other than each relevant entity's functional currency.

CLARIVATE PLC

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

(Amounts in thousands, except share and per share data, option price amounts, ratios or as noted)

Interest Expense, net

Interest expense, net consists of expense related to interest on our borrowings under our term loan facility and our secured notes due 2026, the amortization and write off of debt issuance costs and original discount, and interest related to certain derivative instruments.

Benefit (Provision) for Income Taxes

A benefit or provision for income tax is calculated for each of the jurisdictions in which we operate. The benefit or provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The benefit or provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the book and tax bases of assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Interest accrued related to unrecognized tax benefits and income tax related penalties are included in the provision for income taxes.

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.

Adjusted Revenues

We present Adjusted Revenues, which excludes the impact of the deferred revenue purchase accounting adjustment (recorded in connection with the separation from Thomson Reuters) and revenues from divestitures. We present these measures because we believe it is useful to readers to better understand the underlying trends in our operations. See “— Certain Non-GAAP Measures — Adjusted Revenues” below for important information on the limitations of Adjusted Revenues and their reconciliation to the respective revenues measures under U.S. GAAP.

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), losses on extinguishment of debt, stock-based compensation, unrealized foreign currency gains/(losses), costs associated with the transition services agreement with Thomson Reuters, which we entered into in connection with our separation from Thomson Reuters in 2016, separation and integration costs, transformational and restructuring expenses, acquisition-related adjustments to deferred revenues, costs related to our merger with Churchill Capital Corp in 2019, non-cash income/(loss) on equity and cost method investments, non-operating income or expense, the impact of certain non-cash, 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 Adjusted Revenues.

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 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

CLARIVATE PLC

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

(Amounts in thousands, except per share and per share data, option price amounts, ratios or as noted)

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 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 products, which accounted for 77.5% and 82.6% in each of the three months ended September 30, 2020 and 2019 and 78.4% and 82.8% for the nine months ended September 30, 2020 and 2019, respectively. We calculate and monitor ACV for each of our Groups 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:


	September 30,				Variance
(in thousands, except percentages)	2020		2019		$		%
Annualized contract value	$	860,932	$	788,700	$	72,232	9.2	%

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 Groups, 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 91.0% and 90.6% for the nine months ended September 30, 2020 and 2019, respectively.

CLARIVATE PLC

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

(Amounts in thousands, except per share and per share data, option price amounts, ratios or as noted)

Results of Operations

The following table presents the results of operations for the three months ended September 30, 2020 and 2019:


	Three Months Ended September 30,				Variance Increase / (Decrease)
	2020		2019			$		%
(in thousands, except percentages)
Revenues, net	$	284,360	$	242,998		$	41,362	17.0	%
Cost of revenues, excluding depreciation and amortization	(91,805)		(87,117)			4,688		5.4	%
Selling, general and administrative costs, excluding depreciation and amortization	(91,319)		(96,017)			(4,698)		(4.9)	%
Share-based compensation expense	(6,796)		(9,567)			(2,771)		(29.0)	%
Depreciation	(2,918)		(2,281)			637		27.9	%
Amortization	(65,696)		(41,656)			24,040		57.7	%
Transaction expenses	(34,938)		(8,645)			26,293		N/M
Transition, integration and other related expenses	(222)		(3,327)			(3,105)		(93.3)	%
Restructuring and impairment	(3,192)		—			3,192		N/M
Legal settlement	—		39,399			(39,399)		N/M
Other operating income (expense), net	(138)		2,057			(2,195)		N/M
Total operating expenses	(297,024)		(207,154)			(89,870)		(43.4)	%
Income (loss) from operations	(12,664)		35,844			(48,508)		N/M
Interest expense, net	(20,244)		(23,369)			(3,125)		(13.4)	%
Income (loss) before income tax	(32,908)		12,475			(45,383)		N/M
Provision for income taxes	(4,325)		(1,644)			2,681		N/M
Net income (loss)	$	(37,233)	$	10,831		$	(48,064)	N/M

CLARIVATE PLC

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

(Amounts in thousands, except share and per share data, option price amounts, ratios or as noted)

The following table presents the results of operations for the nine months ended September 30, 2020 and 2019:


	Nine Months Ended September 30,				Variance Increase / (Decrease)
	2020		2019		$		%
(in thousands, except percentages)	(unaudited)
Revenues, net	$	798,452	$	719,332	$	79,120	11.0	%
Cost of revenues, excluding depreciation and amortization	(265,063)		(264,013)		1,050		0.4	%
Selling, general and administrative costs, excluding depreciation and amortization	(266,749)		(280,766)		(14,017)		(5.0)	%
Share-based compensation expense	(31,121)		(46,675)		(15,554)		(33.3)	%
Depreciation	(8,151)		(6,463)		1,688		26.1	%
Amortization	(168,049)		(138,694)		29,355		21.2	%
Transaction expenses	(70,154)		(42,073)		28,081		66.7	%
Transition, integration and other related expenses	(3,774)		(9,750)		(5,976)		(61.3)	%
Restructuring and impairment	(26,792)		—		26,792		N/M
Legal settlement	—		39,399		(39,399)		N/M
Other operating income, net	14,675		3,047		11,628		N/M
Total operating expenses	(825,178)		(745,988)		(79,190)		(10.6)	%
Loss from operations	(26,726)		(26,656)		(70)		(0.3)	%
Interest expense, net	(72,306)		(93,938)		(21,632)		(23.0)	%
Loss before income tax	(99,032)		(120,594)		21,562		17.9	%
Provision for income taxes	(13,693)		(5,596)		8,097		N/M
Net loss	$	(112,725)	$	(126,190)	$	13,465	10.7	%

Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

Revenues, Net

Revenues, net of $284,360 for the three months ended September 30, 2020, increased by $41,362, or 17.0%, from $242,998 for the three months ended September 30, 2019. On a constant currency basis, Revenues, net increased $37,048, or 15.2% for the three months ended September 30, 2020. Revenues, net of $798,452 for the nine months ended September 30, 2020, increased by $79,120, or 11.0%, from $719,332 for the nine months ended September 30, 2019. On a constant currency basis, Revenues, net increased $79,612, or 11.1% for the nine months ended September 30, 2020.

Adjusted Revenues, which excludes the impact of the deferred revenues adjustment, increased $43,402, or 17.9%, to $286,467 in the three months ended September 30, 2020 from $243,065 in the three months ended September 30, 2019. On a constant currency basis, Adjusted Revenues increased $39,088, or 16.1% for the three months ended September 30, 2020. Adjusted Revenues increased $86,179, or 12.0%, to $805,873 in the nine months ended September 30, 2020 from $719,694 in the nine months ended September 30, 2019. On a constant currency basis, Adjusted Revenues increased $86,671, or 12.0% for the nine months ended September 30, 2020. For an explanation of our calculation of Adjusted Revenues and the limitations as to its usefulness, see “— Certain Non-GAAP Measures — Adjusted Revenues, Adjusted Subscription Revenues and Adjusted Transactional Revenues.”

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

CLARIVATE PLC

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

(Amounts in thousands, except share and per share data, option price amounts, ratios or as noted)


					Variance Increase/(Decrease)				Percentage of Factors Increase/(Decrease)
	Three Months Ended September 30,				Total Variance (Dollars)		Total Variance (Percentage)		Acquisitive		Disposal		FX Impact		Organic
(in thousands, except percentages)	2020		2019
Subscription revenues	$	222,069	$	200,813	$	21,256	10.6	%	11.7	%	(6.5)	%	1.9	%	3.5	%
Transactional revenues	64,398		42,252		22,146		52.4	%	67.8	%	(0.5)	%	1.3	%	(16.2)	%
Deferred revenues adjustment (1)	(2,107)		(67)		(2,040)		NM		NM		—	%	—	%	61.0	%
Revenues, net	$	284,360	$	242,998	$	41,362	17.0	%	20.6	%	(5.5)	%	1.8	%	0.2	%
Deferred revenues adjustment (1)	2,107		67		2,040		NM		NM		—	%	—	%	(61.0)	%
Adjusted Revenues, net	$	286,467	$	243,065	$	43,402	17.9	%	21.5	%	(5.5)	%	1.8	%	0.1	%

(1) Reflects the deferred revenues adjustment as a result of purchase accounting.

Subscription revenues increased by $21,256, or 10.6% for the three months ended September 30, 2020. On a constant currency basis, subscription revenues increased by $17,502, or 8.7%. Acquisitive subscription growth was generated from the acquisitions of Darts-ip in November 2019 ("Darts Transaction") and DRG in February 2020 ("DRG Transaction"). Disposal subscription reduction was derived from the divestiture of the MarkMonitor Brand Protection, Antipiracy, and Antifraud products in January 2020 ("MarkMonitor Transaction"). Organic subscription revenues increased primarily due to price increases and new business.

Transactional revenues increased by $22,146, or 52.4% for the three months ended September 30, 2020. On a constant currency basis, transactional revenues increased by $21,586, or 51.1%. Acquisitive transactional growth was generated from the DRG Transaction. Disposal transactional reduction was derived from the MarkMonitor Transaction. Organic transactional revenues decreased due to an overall decrease in demand primarily driven by economic conditions resulting from the COVID-19 pandemic.


					Variance Increase/(Decrease)				Percentage of Factors Increase/(Decrease)
	Nine Months Ended September 30,				Total Variance (Dollars)		Total Variance (Percentage)		Acquisitive		Disposal		FX Impact		Organic
(in thousands, except percentages)	2020		2019
Subscription revenues	$	631,873	$	596,052	$	35,821	6.0	%	9.5	%	(6.9)	%	(0.1)	%	3.5	%
Transactional revenues	174,000		123,642		50,358		40.7	%	52.1	%	(0.9)	%	(0.1)	%	(10.4)	%
Deferred revenues adjustment (1)	(7,421)		(362)		(7,059)		NM		NM		—	%	—	%	69.4	%
Revenues, net	$	798,452	$	719,332	$	79,120	11.0	%	15.8	%	(5.9)	%	(0.1)	%	1.2	%
Deferred revenues adjustment (1)	7,421		362		7,059		NM		NM		—	%	—	%	(69.4)	%
Adjusted Revenues, net	$	805,873	$	719,694	$	86,179	12.0	%	16.8	%	(5.9)	%	(0.1)	%	1.2	%

(1) Reflects the deferred revenues adjustment as a result of purchase accounting.

Subscription revenues increased by $35,821, or 6.0% for the nine months ended September 30, 2020. On a constant currency basis, subscription revenues increased by $36,182, or 6.1%. Acquisitive subscription growth was generated from the Darts Transaction and DRG Transaction. Disposal subscription revenues reduction was derived from the MarkMonitor Transaction. Organic subscription revenues increased primarily due to price increases and new business.

Transactional revenues increased by $50,358, or 40.7% for the nine months ended September 30, 2020. On a constant currency basis, transactional revenues increased by $50,490, or 40.8%. Acquisitive transactional growth was generated from the DRG Transaction. Disposal transactional reduction was derived from the MarkMonitor Transaction. Organic transactional revenues decreased due to an overall decrease in demand primarily driven by economic conditions resulting from the COVID-19 pandemic.

The table below presents our revenue split by geographic region for the periods indicated, as well the drivers of the variances between periods, including as a percentage of such revenues.

CLARIVATE PLC

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

(Amounts in thousands, except share and per share data, option price amounts, ratios or as noted)


					Variance Increase/(Decrease)				Percentage of Factors Increase/(Decrease)
Revenues by Geography	Three Months Ended September 30,				Total Variance (Dollars)		Total Variance (Percentage)		Acquisitive		Disposal		FX Impact		Organic
(in thousands, except percentages)	2020		2019
Americas	$	146,213	$	114,937	$	31,276	27.2	%	33.4	%	(7.7)	%	0.2	%	1.3	%
Europe/Middle East/Africa	77,552		68,659		8,893		13.0	%	16.1	%	(5.0)	%	3.7	%	(1.8)	%
Asia Pacific	$	62,702	59,469		$	3,233	5.4	%	4.6	%	(1.6)	%	2.5	%	(0.1)	%
Deferred revenues adjustment (1)	(2,107)		(67)		(2,040)		NM		NM		—	%	—	%	61.0	%
Revenues, net	$	284,360	$	242,998	$	41,362	17.0	%	20.6	%	(5.5)	%	1.8	%	0.2	%
Deferred revenues adjustment (1)	2,107		67		2,040		NM		NM		—	%	—	%	(61.0)	%
Adjusted Revenues	$	286,467	$	243,065	$	43,402	17.9	%	21.5	%	(5.5)	%	1.8	%	0.1	%

(1) Reflects the deferred revenues adjustment as a result of purchase accounting.

Acquisitive growth for all regions was related to the Darts Transaction and DRG Transaction. Disposal reduction for all regions was derived from the MarkMonitor Transaction. On a constant currency basis, Americas revenues increased by $31,008, or 27.0%, with organic growth due to improved subscription revenues. On a constant currency basis, Europe/Middle East/Africa revenues increased by $6,335, or 9.2%, with an organic decline due to lower transactional revenues due to an overall decrease in demand primarily driven by economic conditions resulting from the COVID-19 pandemic, partially offset by improved subscription revenues. On a constant currency basis, Asia Pacific revenues increased $1,745, or 2.9% with an organic decline due to lower transactional revenues due to an overall decrease in demand primarily driven by economic conditions resulting from the COVID-19 pandemic, partially offset by improved subscription revenues.


					Variance Increase/(Decrease)				Percentage of Factors Increase/(Decrease)
Revenues by Geography	Nine Months Ended September 30,				Total Variance (Dollars)		Total Variance (Percentage)		Acquisitive		Disposal		FX Impact		Organic
(in thousands, except percentages)	2020		2019
Americas	$	405,791	$	345,180	$	60,611	17.6	%	25.9	%	(8.1)	%	—	%	(0.2)	%
Europe/Middle East/Africa	218,195		203,850		14,345		7.0	%	12.1	%	(5.5)	%	(0.2)	%	0.5	%
Asia Pacific	$	181,887	170,664		$	11,223	6.6	%	3.9	%	(1.8)	%	—	%	4.4	%
Deferred revenues adjustment (1)	(7,421)		(362)		(7,059)		NM		NM		—	%	—	%	69.4	%
Revenues, net	$	798,452	$	719,332	$	79,120	11.0	%	15.8	%	(5.9)	%	(0.1)	%	1.2	%
Deferred revenues adjustment (1)	7,421		362		7,059		NM		NM		—	%	—	%	(69.4)	%
Adjusted Revenues	$	805,873	$	719,694	$	86,179	12.0	%	16.8	%	(5.9)	%	(0.1)	%	1.2	%

(1) Reflects the deferred revenues adjustment as a result of purchase accounting.

Acquisitive growth for all regions was related to the Darts Transaction and DRG Transaction. Disposal reduction for all regions was derived from the MarkMonitor Transaction. On a constant currency basis, Americas revenues increased by $60,701, or 17.6% with organic decline due to lower transactional revenues due to an overall decrease in demand primarily driven by economic conditions resulting from the COVID-19 pandemic, offset by improved subscription revenues. On a constant currency basis, Europe/Middle East/Africa revenues increased by $14,763, or 7.2%, with organic growth due to improved subscription revenues. On a constant currency basis, Asia Pacific revenues increased $11,207, or 6.6%, with organic growth due to improved subscription revenues.

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

CLARIVATE PLC

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

(Amounts in thousands, except share and per share data, option price amounts, ratios or as noted)


					Variance Increase/(Decrease)				Percentage of Factors Increase/(Decrease)
Revenues by Product Group	Three Months Ended September 30,				Total Variance (Dollars)		Total Variance (Percentage)		Acquisitive		Disposal		FX Impact		Organic
(in thousands, except percentages)	2020		2019
Science Product Group	$	190,718	$	136,060	$	54,658	40.2	%	36.4	%	—	%	2.3	%	1.5	%
IP Product Group	95,749		107,005		(11,256)		(10.5)	%	2.5	%	(12.4)	%	1.1	%	(1.7)	%
Deferred revenues adjustment (1)	(2,107)		(67)		(2,040)		NM		NM		—	%	—	%	61.0	%
Revenues, net	$	284,360	$	242,998	$	41,362	17.0	%	20.6	%	(5.5)	%	1.8	%	0.2	%
Deferred revenues adjustment (1)	2,107		67		2,040		NM		NM		—	%	—	%	(61.0)	%
Adjusted revenues	$	286,467	$	243,065	$	43,402	17.9	%	21.5	%	(5.5)	%	1.8	%	0.1	%

(1) Reflects the deferred revenues adjustment as a result of purchase accounting.

Science Product Group: Revenues of $190,718 for the three months ended September 30, 2020 increased $54,658, or 40.2% from $136,060 for the three months ended September 30, 2019. On a constant currency basis, revenues increased by $51,566, or 37.9%, driven by acquisitive and subscription revenue growth. Acquisitive growth was generated from the DRG Transaction. Organic revenues increased due to price increases and new business in subscription revenues, partially offset by lower transactional revenues due to a decline in demand primarily driven by economic conditions resulting from the COVID-19 pandemic.

IP Product Group: Revenues of $95,749 for the three months ended September 30, 2020 decreased $11,256, or 10.5% from $107,005 for the three months ended September 30, 2019. On a constant currency basis, revenue decreased $12,478, or 11.8%, driven by a disposal reduction and a decrease in transactional revenues, offset by increases to acquisitive growth. Disposal reduction was derived from the MarkMonitor Transaction. Organic revenues decreased due to lower transaction revenues due to a decrease in demand primarily driven by economic conditions resulting from the COVID-19 pandemic, offset by improved subscription revenues driven by new business and price increases. Acquisitive growth was generated from the Darts Transaction.


					Variance Increase/(Decrease)				Percentage of Factors Increase/(Decrease)
Revenues by Product Group	Nine Months Ended September 30,				Total Variance (Dollars)		Total Variance (Percentage)		Acquisitive		Disposal		FX Impact		Organic
(in thousands, except percentages)	2020		2019
Science Product Group	$	521,649	$	401,392	$	120,257	30.0	%	28.2	%	—	%	(0.1)	%	1.9	%
IP Product Group	284,224		318,302		(34,078)		(10.7)	%	2.4	%	(13.3)	%	—	%	—	%
Deferred revenues adjustment (1)	(7,421)		(362)		(7,059)		NM		NM		—	%	—	%	69.4	%
Revenues, net	$	798,452	$	719,332	$	79,120	11.0	%	15.8	%	(5.9)	%	(0.1)	%	1.2	%
Deferred revenues adjustment (1)	7,421		362		7,059		NM		NM		—	%	—	%	(69.4)	%
Adjusted revenues	$	805,873	$	719,694	$	86,179	12.0	%	16.8	%	(5.9)	%	(0.1)	%	1.2	%

(1) Reflects the deferred revenues adjustment as a result of purchase accounting.

Science Product Group: Revenues of $521,649 for the nine months ended September 30, 2020 increased $120,257, or 30.0% from $401,392 for the nine months ended September 30, 2019. On a constant currency basis, revenues increased by $120,816, or 30.1%, driven by acquisitive and subscription revenue growth. Acquisitive growth was generated from the DRG Transaction. Organic revenues increased due to price increases and new business in subscription revenues, partially offset by a lower transactional revenues due to a decline in demand primarily driven by economic conditions resulting from the COVID-19 pandemic..

IP Product Group: Revenues of $284,224 for the nine months ended September 30, 2020 decreased $34,078, or 10.7% from $318,302 for the nine months ended September 30, 2019. On a constant currency basis, revenue decreased $34,116, or 10.8% driven by a disposal reductions and a decrease in transactional revenues, offset by increases to acquisitive growth. Disposal reduction was derived from the MarkMonitor Transaction. Acquisitive growth was generated from the Darts Transaction. Organic revenues increased due to an increase subscription revenue driven by content upgrades, offset by lower transactional revenues due to a decline in demand primarily driven by economic conditions resulting from the COVID-19 pandemic.

CLARIVATE PLC

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

(Amounts in thousands, except share and per share data, option price amounts, ratios or as noted)

Cost of Revenues, Excluding Depreciation and Amortization

Cost of revenues of $91,805 for the three months ended September 30, 2020 increased by $4,688, or 5.4%, from $87,117 for the three months ended September 30, 2019. Cost of revenues of $265,063 for the nine months ended September 30, 2020 increased by $1,050, or 0.4%, from $264,013 for the nine months ended September 30, 2019. On a constant currency basis, cost of revenues increased by $4,027 or 4.6% for the three months ended September 30, 2020 primarily due to additional costs related to DRG, which was acquired in February 2020, offset by a decrease in costs associated with the transition service agreement, employee related costs and outside services including consulting fees, as well as the MarkMonitor Transaction in January 2020. On a constant currency basis, cost of revenues increased by $2,293 or 0.9% for the nine months ended September 30, 2020 primarily due to additional costs related to DRG, which was acquired in February 2020, offset by a decrease in costs associated with the transition service agreement, employee related costs and outside services including consulting fees, as well as the MarkMonitor Transaction in January 2020.

Selling, General and Administrative, Excluding Depreciation and Amortization

Selling, general and administrative expense of $91,319 for the three months ended September 30, 2020, decreased by $4,698, or 4.9%, from $96,017 for the three months ended September 30, 2019. Selling, general and administrative expense of $266,749 for the nine months ended September 30, 2020, decreased by $14,017, or 5.0%, from $280,766 for the nine months ended September 30, 2019. On a constant currency basis, Selling, general and administrative expenses decreased by $5,354, or 5.6%, for the three months ended September 30, 2020 primarily due to a decrease in costs associated with transition service agreement, employee related costs, outside services including consulting fees and marketing costs, offset by additional costs related to DRG, which was acquired in February 2020. On a constant currency basis, Selling, general and administrative expense decreased 13,113, or 4.7%, for the nine months ended September 30, 2020 primarily due to a decrease in costs associated with transition service agreement, employee related costs, outside services including consulting fees and marketing costs, offset by additional costs related to DRG.

Share-based Compensation

Share-based compensation expense of $6,796 for the three months ended September 30, 2020 decreased by $2,771, or 29.0% from $9,567 for the three months ended September 30, 2019. Share-based compensation expense of $31,121 for the nine months ended September 30, 2020 decreased by $15,554, or 33.3% from $46,675 for the nine months ended September 30, 2019. The decrease in the three and nine months ended September 30, 2020 was largely due to accelerated vesting, additional awards granted, and expense related to our merger with Churchill Capital Corp in 2019. This decrease was partially offset by additional expense related to the waived performance vesting condition associated with the Merger Shares in Q1 2020 and the issuance of RSUs in the nine months ended September 30, 2020.

Depreciation

Depreciation of $2,918 for the three months ended September 30, 2020 increased by $637, or 27.9% from $2,281 for the three months ended September 30, 2019. Depreciation of $8,151 for the nine months ended September 30, 2020 increased by $1,688, or 26.1% from $6,463 for the nine months ended September 30, 2019. The increase in the three and nine months ended September 30, 2020 was driven by the additional depreciation on assets acquired through the Darts Transaction and DRG Transaction. This increase was offset by run-off of previously purchased capital assets.

Amortization

Amortization of $65,696 for the three months ended September 30, 2020 increased by $24,040, or 57.7%, from $41,656 for the three months ended September 30, 2019. Amortization of $168,049 for the nine months ended September 30, 2020 increased by $29,355, or 21.2%, from $138,694 for the nine months ended September 30, 2019. The increase in the period three and nine months ended September 30, 2020 was driven by an increase in the amortization on intangible assets acquired through the Darts-ip Transaction and DRG Transaction. This increase was offset by a decrease in amortization related to intangible assets acquired in connection with our separation from Thomson Reuters in 2016 that are now fully amortized and reduction of amortization from MarkMonitor Transaction.

CLARIVATE PLC

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

(Amounts in thousands, except share and per share data, option price amounts, ratios or as noted)

Transaction Expenses

Transaction expenses of $34,938 for the three months ended September 30, 2020, increased by $26,293 from $8,645 for the three months ended September 30, 2019. Transaction expenses of $70,154 for the nine months ended September 30, 2020, increased by $28,081, or 66.7% from $42,073 for the nine months ended September 30, 2019. The increase in the three months ended September 30, 2020 was due to costs associated with the DRG acquisition and CPA Global acquisition during 2020, offset by costs incurred with the closing of a secondary offering and increases in the estimate of contingent payments for acquisition related earn-outs during 2019. The increase in the nine months ended September 30, 2020 was due to costs associated with the DRG acquisition, the CPA Global acquisition, the MarkMonitor divestiture and other finance merger and acquisition related activities during 2020, offset by costs incurred in association with our merger with Churchill Capital Corp in 2019.

Transition, Integration, and Other Related Expenses

Transition, integration, and other expenses of $222 for the three months ended September 30, 2020, decreased by $3,105, or 93.3%, from $3,327 for the three months ended September 30, 2019. Transition, integration, and other expenses of $3,774 for the nine months ended September 30, 2020, decreased by $5,976, or 61.3%, from $9,750 for the nine months ended September 30, 2019. The decrease in the three and nine months ended September 30, 2020 reflects the slowing pace of costs incurred in connection with establishing our standalone company infrastructure following our separation from Thomson Reuters in 2016 and our merger with Churchill Capital Corp in 2019.

Restructuring and impairment

Restructuring and impairment of $3,192 for the three months ended September 30, 2020, increased by $3,192, from $0 for the three months ended September 30, 2019. Restructuring and impairment of $26,792 for the nine months ended September 30, 2020, increased by $26,792, from $0 for the nine months ended September 30, 2019. The increase is related to initiatives, following our merger with Churchill Capital Corp in 2019 and acquisition of DRG in February 2020, to streamline our operations by simplifying our organization and focusing on two product groups.

Legal Settlement

The three and nine months ended September 30, 2019 includes a gain on a confidential legal settlement of $39,399.

Other Operating Income (Expense), Net

Other operating income (expense), net of $(138) for the three months ended September 30, 2020 decreased by $2,195 from income of $2,057 for the three months ended September 30, 2019. Other operating income, net of $14,675 for the nine months ended September 30, 2020 increased by $11,628 from $3,047 for the nine months ended September 30, 2019. The change was attributed to 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.

Interest Expense, net

Interest expense, net of $20,244 for the three months ended September 30, 2020, decreased by $3,125, or 13.4% from $23,369 for the three months ended September 30, 2019. Interest expense, net of $72,306 for the nine months ended September 30, 2020, decreased by $21,632, or 23.0% from $93,938 for the nine months ended September 30, 2019. The decreases in the interest expense, net for periods three and nine months ended September 30, 2020 was due to lower interest payments resulting from lower interest rates on the Company's borrowings as the result of the refinancing transaction in October 2019 offset by the additional $360,000 incremental term loan borrowings.

Benefit (Provision) for Income Taxes

There was a provision of $4,325 for the three months ended September 30, 2020, compared to a provision of $1,644 for income taxes for the three months ended September 30, 2019. There was a provision of $13,693 for the nine months ended September 30, 2020, compared to a provision of $5,596 for income taxes for the nine months ended September 30, 2019. The tax provision in each period reflected the mix of taxing jurisdictions in which pre-tax profits and losses were recognized.

CLARIVATE PLC

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

(Amounts in thousands, except share and per share data, option price amounts, ratios or as noted)

Certain Non-GAAP Measures

We include non-GAAP measures in this Report, including Adjusted Revenues, Adjusted EBITDA, Adjusted EBITDA margin and 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 Revenues

We present Adjusted Revenues, which excludes the impact of the deferred revenues purchase accounting adjustment recorded in connection with the separation from Thomson Reuters and acquisitions. We present this measure because we believe it is useful to readers to better understand the underlying trends in our operations.

Our presentation of Adjusted Revenues is for informational purposes only and is not necessarily indicative of our future results. You should compensate for these limitations by relying primarily on our GAAP results and only using non-GAAP measures for supplementary analysis.

The following table presents our calculation of Adjusted Revenues for the three and nine months ended September 30, 2020 and 2019 and a reconciliation of this measure to our Revenues, net for the same periods:


	Three Months Ended September 30,				Variance
(in thousands, except percentages)	2020		2019		$		%
Revenues, net	$	284,360	$	242,998	$	41,362	17.0	%
Deferred revenues adjustment	2,107		67		2,040		NM
Adjusted revenues	$	286,467	$	243,065	$	43,402	17.9	%


	Nine Months Ended September 30,				Variance
(in thousands, except percentages)	2020		2019		$		%
Revenues, net	$	798,452	$	719,332	$	79,120	11.0	%
Deferred revenues adjustments	7,421		362		7,059		NM
Adjusted revenues	$	805,873	$	719,694	$	86,179	12.0	%

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), losses on extinguishment of debt, share-based compensation expense, unrealized foreign currency gains/(losses), costs associated with the transition services agreement with Thomson Reuters, which we entered into in connection with our separation from Thomson Reuters in 2016, separation and integration costs, transformational and restructuring expenses, acquisition-related adjustments to deferred revenues, costs related to our merger with Churchill Capital Corp in 2019, non-cash income/(loss) on equity and cost method investments, non-operating income or expense, deferred revenues adjustment, Transaction related costs, restructuring costs, the impact of certain non-cash, 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 Adjusted Revenues.

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

CLARIVATE PLC

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

(Amounts in thousands, except share and per share data, option price amounts, ratios or as noted)

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. You should compensate for these limitations by relying primarily on our U.S. GAAP results and only use Adjusted EBITDA and Adjusted EBITDA margin for supplementary analysis.

The following table presents our calculation of Adjusted EBITDA for the three and nine months ended September 30, 2020 and 2019 and reconciles these measures to our Net loss for the same periods:


	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except percentages)	2020			2019			2020			2019
Net loss	$	(37,233)		$	10,831		$	(112,725)		$	(126,190)
Provision for income taxes	4,325			1,644			13,693			5,596
Depreciation and amortization	68,614			43,937			176,200			145,157
Interest, net	20,244			23,369			72,306			93,938
Transition services agreement costs(1)	(115)			2,734			647			10,481
Transition, transformation and integration expense(2)	222			11,488			3,774			25,289
Deferred revenues adjustment(3)	2,107			67			7,421			362
Transaction related costs(4)	34,938			8,645			70,154			42,073
Share-based compensation expense	6,796			9,567			31,121			46,675
Restructuring(5)	3,192			—			26,792			—



Legal Settlement	—			(39,399)			—			(39,399)
Other(6)	5,117			4,189			(2,835)			5,533
Adjusted EBITDA	$	108,207		$	77,072		$	286,548		$	209,515
Adjusted EBITDA margin	37.8		%	31.7		%	35.6		%	29.1		%

(1) In 2020, this is related to a new transition services agreement and offset by the reverse transition services agreement from the sale of MarkMonitor assets. In 2019, this includes payments to Thomson Reuters under the Transition Services Agreement.

(2) Includes costs incurred in connection with and after our separation from Thomson Reuters in 2016 relating to the implementation of our standalone company infrastructure and related cost-savings initiatives. These costs include mainly transition consulting, technology infrastructure, personnel and severance expenses relating to our standalone company infrastructure, which are recorded in Transition, integration, and other line-item of our income statement, as well as expenses related to the restructuring and transformation of our business following our separation from Thomson Reuters in 2016, mainly related to the integration of separate business units into one functional organization and enhancements in our technology.

(3) Reflects the deferred revenues adjustment as a result of purchase accounting.

(4) 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.

(5) Reflects costs incurred in connection with the initiative, following our merger with Churchill Capital Corp in 2019, to streamline our operations by simplifying our organization and focusing on two product groups. This also includes restructuring related costs following the acquisition of DRG in 2020.

(6) Includes primarily the net impact of foreign exchange gains and losses related to the re-measurement of balances and other items that do not reflect our ongoing operating performance.

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 evaluate our competitors and to measure the ability of companies to service their 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. You should compensate for these limitations by relying primarily on our U.S. GAAP results.

CLARIVATE PLC

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

(Amounts in thousands, except share and per share data, option price amounts, ratios or as noted)

We define free cash flow as net cash provided by operating activities less capital expenditures. For further discussion on 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 on our Condensed Balance Sheet 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 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, our 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. We continue to assess the changing environment in relation to COVID-19 and conducted a scenario planning exercise to assess the potential impact on our liquidity and our future financial position. The scenario planning has taken into account our existing cash position, the creditworthiness of our banking partners, potential revenue outcomes (in both a worst and reasonable downside scenario), and to be prudent evaluated potential reductions in the cost base. 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, data center infrastructure investments, 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.

Unrestricted cash and cash equivalents were $601,075 and $76,130 as of September 30, 2020 and December 31, 2019, respectively. We had approximately $1,950,550 of debt as of September 30, 2020, consisting primarily of $1,250,550 in borrowings under our term loan facility, and $700,000 in outstanding principal of secured notes due 2026 with no borrowings under our revolving credit facility as of the date. As of December 31, 2019, we had approximately $1,665,000 of debt, consisting primarily of $900,000 in borrowings under our term loan facility, $700,000 in outstanding principal of secured notes due 2026 and $65,000 of borrowings under our revolving credit facility (which borrowings under our revolving credit facility we subsequently paid down in full in February 2020). On February 28, 2020, we incurred an incremental $360,000 of term loans under our term loan facility and used the net proceeds from such borrowings, together with cash on hand, to fund a portion of the cash consideration for the DRG acquisition and to pay related fees and expenses. On October 1, 2020, in connection with the CPA Global acquisition, the Company incurred an incremental $1,600,000 of borrowings under our term loan facility and used the net proceeds from such borrowings to fund a portion of the repayment of CPA Global's $2,052,926 of outstanding debt. The Company borrowed $60,000 on the existing Revolving Credit Facility and used the net proceeds from such borrowings to fund the debt extinguishment costs in connection with funding of the repayment of CPA Global's outstanding debt. See “—Debt Profile” below.

Cash Flows

The following table discloses our consolidated cash flows provided by (used in) operating, investing and financing activities for the periods presented:

CLARIVATE PLC

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

(Amounts in thousands, except share and per share data, option price amounts, ratios or as noted)


	Nine Months Ended September 30,
(in thousands)	2020		2019
Net cash provided by operating activities	$	128,022	$	112,488
Net cash used in investing activities	(966,151)		(46,306)
Net cash provided by (used in) financing activities	1,370,079		(4,143)
Effect of exchange rates	(6,447)		1,198
Net increase in cash and cash equivalents, and restricted cash	525,503		63,237
Cash and cash equivalents, and restricted cash beginning of the year	76,139		25,584

Cash and cash equivalents, and restricted cash end of the period	$	601,642	$	88,821

Cash Flows Provided by Operating Activities

Net cash provided by operating activities consists of net loss adjusted for non-cash items, such as: depreciation and amortization of property and equipment and intangible assets, deferred income taxes, share-based compensation, deferred finance charges and for changes in net working capital assets and liabilities.

Net cash provided by operating activities was $128,022 and $112,488 for the nine months ended September 30, 2020 and September 30, 2019, respectively. The $128,022 of net cash provided by operating activities for the nine months ended September 30, 2020 included net loss of $112,725 offset with $227,956 of non-cash adjustments and changes in operating assets and liabilities of $12,791. The increase in operating cash flows was driven by year over year increases in earnings driven by increases in revenue and lower operating expenses.

Cash Flows Used in Investing Activities

Net cash used in investing activities was $966,151 for the nine months ended September 30, 2020. Cash flows used in investing is attributable to: (1) $885,323 used to acquire key business intangible assets from DRG, (2) $78,597 in capital expenditures and (3) $5,982 of key business intangible assets acquired from CustomersFirst Now. This activity was offset by cash flows provided by investing related to $3,751 of divestiture related to the sale of the MarkMonitor AntiFraud, Antipiracy, and Brand Protection products.

Net cash used in investing activities was $46,306 for the nine months ended September 30, 2019 reflecting $43,681 capital expenditures and $2,625 of key business intangible assets acquired from SequenceBase.

Our capital expenditures in both 2020 and 2019 consisted primarily of capitalized labor, consulting and other costs associated with product development.

Cash Flows Provided by (Used in) Financing Activities

Net cash provided by financing activities was $1,370,079 for the nine months ended September 30, 2020. Key drivers of cash flows provided by financing include: (1) Proceeds of $843,752 from the issuance of ordinary shares related to our public offerings, (2) $360,000 from the issuance of an incremental term loan and (3) $277,526 and $1,307 from the exercise of warrants and employee share options, respectively. This activity was offset by cash flows used in financing related to: (1) $65,000 repayment of borrowings under the revolving credit facility, (2) $28,674 of payments related to tax withholdings for stock-based compensation, (3) $4,115 payment related to the TradeMark Vision contingent earn-out, (4) $5,267 payment of debt issuance costs related to the issuance of the incremental term loan and (5) $9,450 principle payment on the term loan facility.

Net cash used in financing activities was $4,143 for the nine months ended September 30, 2019. Key drivers of cash flows used in financing include: (1) Payment of $630,000 on the Term Loan Facility upon consummation of the Transaction with Churchill, (2) $50,000 repayment of borrowings under the Revolving Credit Facility and (3) $11,509 in recurring Term Loan Facility principal repayments. This activity was offset by cash flows provided by financing related to: (1) $682,087 of proceeds from the Transactions, net of cash acquired, (2) $5,000 in proceeds from the Revolving Credit Facility and (3) $278 related to the issuance of ordinary shares.

In February 2020, we completed an underwritten public offering of 27,600,000 of our ordinary shares, generating net proceeds of $539,714, which we used to fund a portion of the cash consideration for the DRG acquisition. In addition, we incurred an incremental $360,000 of term loans under our term loan facility and used the net proceeds

CLARIVATE PLC

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

(Amounts in thousands, except share and per share data, option price amounts, ratios or as noted)

from such borrowings, together with cash on hand, to fund the remainder of the cash consideration for the DRG acquisition and to pay related fees and expenses.

In June 2020, we completed an underwritten public offering of 50,400,000 of our ordinary shares at a share price of $22.50. Of the 50,400,000 ordinary shares, 14,000,000 were primary ordinary shares offered by Clarivate and 36,400,000 were secondary ordinary shares offered by selling shareholders including 20,821,765 ordinary shares from Onex, 8,097,354 ordinary shares from Baring and 7,480,881 ordinary shares from Directors, Executive Officers and other shareholders. The Company did not receive any proceeds from the sale of secondary ordinary shares by the selling shareholders. The Company received approximately $304,030 in net proceeds from the sale of ordinary shares offered by the Company, after deducting underwriting discounts and estimated offering expenses payable. We intend to use the net proceeds of the offering received by us for general corporate purposes.

During the period January 1, 2020 through February 21, 2020, 24,132,666 of the Company’s outstanding warrants were exercised for one ordinary share per whole warrant at a price of $11.50 per share.

Free Cash Flow (non-GAAP measure)

The following table reconciles free cash flow measure, which is a non-GAAP measure, to net cash provided by operating activities:


	Nine Months Ended September 30,
(in thousands)	2020		2019
Net cash provided by operating activities	$	128,022	$	112,488
Capital expenditures	(78,597)		(43,681)
Free cash flow	$	49,425	$	68,807

Free cash flow was $49,425 for the nine months ended September 30, 2020, compared to $68,807 for the nine months ended September 30, 2019. The decrease in free cash flow was primarily due to an increase in capital expenditures.

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 indenture governing our secured notes due 2026 issued by Camelot Finance S.A. and guaranteed by certain of our subsidiaries, respectively. In addition, the credit facilities and the indenture contain certain restrictive covenants that govern debt incurrence and the making of restricted payments, among other matters. These restrictive covenants utilize Standalone Adjusted EBITDA as a primary component of the compliance metric governing our ability to undertake certain actions otherwise proscribed by such covenants. Standalone Adjusted EBITDA reflects further adjustments to Adjusted EBITDA for cost savings already implemented and excess standalone costs.

Because Standalone Adjusted EBITDA is required pursuant to the terms of the reporting covenants under the credit facilities and the indenture and because this metric is relevant to lenders and noteholders, management considers Standalone Adjusted EBITDA to be relevant to the operation of its business. It is also utilized by management and the compensation committee of the Board as an input for determining incentive payments to employees.

Excess standalone costs are the difference between our actual standalone company infrastructure costs, and our estimated steady state standalone infrastructure costs. We make an adjustment for the difference because we have had to incur costs under the transition services agreement, with Thomson Reuters after we had implemented the infrastructure to replace the services provided pursuant to the transition services agreement, thereby incurring dual running costs. Furthermore, there has been a ramp up period for establishing and optimizing the necessary standalone infrastructure. Since our separation from Thomson Reuters, we have had to transition quickly to replace services provided under the transition services agreement, with optimization of the relevant standalone functions typically following thereafter. Cost savings reflect the annualized “run rate” expected cost savings, net of actual cost savings realized, related to restructuring and other cost savings initiatives undertaken during the relevant period.

Standalone Adjusted EBITDA is calculated under the credit facilities and the indenture by using our Consolidated Net Loss for the trailing 12-month period (defined in the credit facilities and the indenture as our U.S. GAAP net

CLARIVATE PLC

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

(Amounts in thousands, except share and per share data, option price amounts, ratios or as noted)

income adjusted for certain items specified in the credit facilities and the indenture) adjusted for items including: taxes, interest expense, depreciation and amortization, non-cash charges, expenses related to capital markets transactions, acquisitions and dispositions, restructuring and business optimization charges and expenses, consulting and advisory fees, run-rate cost savings to be realized as a result of actions taken or to be taken in connection with an acquisition, disposition, restructuring or cost savings or similar initiatives, “run rate” expected cost savings, operating expense reductions, restructuring charges and expenses and synergies related to the transition projected by us, costs related to any management or equity stock plan, other adjustments that were presented in the offering memorandum used in connection with the issuance of the secured notes due 2026 and earn-out obligations incurred in connection with an acquisition or investment.

The following table reconciles Standalone Adjusted EBITDA to our Net loss for the period presented:


	Twelve Months Ended September 30,
(in thousands)	2020
Net loss	$	(197,512)
Provision for income taxes	18,298
Depreciation and amortization	231,585
Interest, net	136,057
Transition services agreement costs(1)	647
Transition, transformation and integration expense(2)	2,857
Deferred revenues adjustment(3)	7,497
Transaction related costs(4)	74,295

Share-based compensation expense	35,829


Restructuring(5)	42,462

Impairment on assets held for sale	18,431
Other(6)	653
Adjusted EBITDA	371,099
Realized foreign exchange gain	(5,730)
DRG Adjusted EBITDA impact(7)	26,580
Cost savings(8)	36,345
Excess standalone costs(9)	29,959
Standalone Adjusted EBITDA	$	458,253

(2) Includes cash payments in connection with and after our separation from Thomson Reuters in 2016 relating to the implementation of our standalone company infrastructure and related cost-savings initiatives. These cash payments include mainly transition consulting, technology infrastructure, personnel and severance expenses relating to our standalone company infrastructure, which are recorded in Transition, integration, and other line-item of our income statement, as well as cash payments related to the restructuring and transformation of our business following our separation from Thomson Reuters in 2016 mainly related to the integration of separate business units into one functional organization and enhancements in our technology. This also includes cash payments following our merger with Churchill Capital Corp in 2019, to streamline our operations by simplifying our organization and focusing on two product groups.

(3) Reflects the deferred revenues adjustment as a result of purchase accounting.

CLARIVATE PLC

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

(Amounts in thousands, except share and per share data, option price amounts, ratios or as noted)

(6) Includes primarily the net impact of foreign exchange gains and losses related to the re-measurement of balances and other items that do not reflect our ongoing operating performance.

(7) Represents DRG Adjusted EBITDA for the period beginning October 1, 2019 through the acquisition date of February 28, 2020 to reflect the company's Standalone EBITDA as though material acquisitions occurred at the beginning of the presented period.

(8) Reflects the estimated annualized run-rate cost savings, net of actual cost savings realized, related to restructuring and other cost savings initiatives undertaken during the period (exclusive of any cost reductions in our estimated standalone operating costs), including synergies related to acquisitions.

(9) Reflects the difference between our actual standalone company infrastructure costs, and our estimated steady state standalone operating costs, which were as follows:


	Twelve Months Ended September 30,
(in thousands)	2020
Actual standalone company infrastructure costs	$	164,896

Steady state standalone cost estimate	(134,937)
Excess standalone costs	$	29,959

The foregoing adjustments (8) and (9) are estimates and are not intended to represent pro forma adjustments presented within the guidance of Article 11 of Regulation S-X. Although we believe these estimates are reasonable, actual results may differ from these estimates, and any difference may be material. See “— Cautionary Statement Regarding Forward-Looking Statements”

Debt Profile

During the nine months ended September 30, 2020 we incurred an incremental $360,000 of term loans under our term loan facility. In October 2020, in conjunction with the closing of the CPA Global acquisition, we incurred an additional $1,600,000 of term loans under our term loan facility. See "Item 1. – Financial Statements and Supplementary Data – Notes to the Consolidated Financial Statements – Note 22." There have been no further 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, except as discussed above and further 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 in our Annual Report on Form 10-K.

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), a measure identical to our Standalone Adjusted EBITDA disclosed above under “— Required Reported Data — Standalone Adjusted EBITDA”, 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 third 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 30% of the revolving credit facility (excluding (i) non-cash collateralized, issued and undrawn letters of credit in an amount up to $10,000 and (ii) any cash collateralized letters of credit) is utilized at such date. As of September 30, 2020, our consolidated coverage ratio was 4.91 to 1.00 and our consolidated leverage ratio was 2.94 to 1.00. As of the date of this Report, we are in compliance with the covenants in the credit facilities. During the nine months ended September 30, 2020, the Company paid down an additional $65,000 drawn on the revolving credit facility. In addition, in connection with the acquisition of DRG, the Company incurred an incremental $360,000 of term loans under our term loan facility. In October 2020, in conjunction with the closing of the CPA Global acquisition, we incurred an additional $1,600,000

CLARIVATE PLC

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

(Amounts in thousands, except share and per share data, option price amounts, ratios or as noted)

of term loans under our term loan facility. See "Item 1. – Financial Statements and Supplementary Data – Notes to the Consolidated Financial Statements – Note 22."

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. Additionally, the Company has agreed to pay the former shareholders of acquired companies certain amounts in conjunction with the Publons, TradeMarkVision and Kopernio acquisitions. Regarding the Publons acquisition, the Company agreed to pay the former shareholders up to an additional $9,500 through 2020. Regarding the TradeMarkVision acquisition, the Company agreed to pay former shareholders earn-out payments through 2020. Regarding the Kopernio acquisition, the Company agreed to pay contingent consideration of up to $3,500 through 2021. Amounts payable are contingent upon Publons’, TrademarkVision’s and Kopernio’s achievement of certain milestones and performance metrics. As of September 30, 2020, the Company had an outstanding liability for Publons of $3,701 related to the estimated fair value of this contingent consideration included in Accrued expenses and Other current liabilities. The Company paid $8,000 of the contingent purchase price in the nine months ended September 30, 2020, as a result of TradeMarkVision achieving milestones and performance metrics. As of September 30, 2020, the Company had an outstanding liability for TradeMarkVision of $0 related to the estimated fair value of this contingent consideration. During the nine months ended September 30, 2020, the Company paid $2,184 of the contingent consideration as a result of Kopernio achieving milestones and performance metrics. As of September 30, 2020, the Company had an outstanding liability for Kopernio of $0 related to the estimated fair value of this contingent compensation earn-out.

Off Balance Sheet Arrangements

We do not currently have any off-balance sheet arrangements and do not have any holdings in variable interest entities.

Contractual Obligations

We have various contractual obligations and commercial commitments that are recorded as liabilities in our financial statements. Other items, such as purchase obligations and other executory contracts, are not recognized as liabilities in our consolidated financial statements but are required to be disclosed.

The Company incurred an incremental $360,000 of term loans under our term loan facility. In October 2020, in conjunction with the closing of the CPA Global acquisition, we incurred an additional incremental $1,600,000 of term loans under our term loan facility. See "Item 1. – Financial Statements and Supplementary Data – Notes to the Consolidated Financial Statements – Note 22."

There have been no other material changes, outside of the ordinary course of business, to our contractual obligations as previously disclosed in "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity—Contractual Obligations” section, in our Annual Report on Form 10-K.

Critical Accounting Policies, Estimates and Assumptions

There have been no other 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, 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 — Critical Accounting Policies, Estimates and Assumptions” section, in our Annual Report on Form 10-K.

Accounts Receivable

Through the adoption of ASU 2016-13 and the related standards, the Company revised the policy regarding recognition of the uncollectible receivables as follows.

Accounts receivable are recorded at the amount invoiced to customers and do not bear interest. We maintain an allowance for doubtful accounts for losses resulting from the inability of specific customers to meet their financial obligations, representing our best estimate of probable credit losses in existing trade accounts receivable. A specific reserve for doubtful receivables is recorded against the amount due from these customers. We recognize reserves for doubtful receivables utilizing the historical loss method by evaluating factors such as the length of time receivables

CLARIVATE PLC

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

(Amounts in thousands, except share and per share data, option price amounts, ratios or as noted)

are past due, historical collection experience, and the current economic and competitive environment. If any of these estimates change or actual results differ from expected results, then an adjustment is recorded in the period in which the amounts become reasonably estimable. For all other customers, we recognize a general reserve based on average yearly write-offs divided by average quarterly accounts receivable aging by risk buckets.

Recently Issued and Adopted Accounting Pronouncements

For recently issued and adopted accounting pronouncements, see "Item 1. Financial Statements and Supplementary Data— Notes to Condensed Consolidated Financial Statements — Note 3” within this Report.

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 Annual Report on Form 10-K.

Interest Rate Risk

Our interest rate risk arises from our long-term borrowings at floating interest rates. Borrowings under our Credit Facilities are subject to floating base interest rates, plus a margin. As of September 30, 2020, we had $1,250,550 of floating rate debt outstanding under the credit facilities, consisting of borrowings under the term loan facility for which the base rate was one-month LIBOR (subject, with respect to the term loan facility only, to a floor of 0.0%), which stood at 0.15%. Of this amount, we hedged $337,952 of our principal amount of our floating rate debt under hedges that we deemed effective as of September 30, 2020. As a result, $912,598 of our outstanding long-term debt effectively bore interest at floating rates. A 100 basis point increase or decrease in the applicable base interest rate under the Credit Facilities would have had an impact of $346 and $919 on our cash interest expense for the three and nine months ended September 30, 2020, respectively. For additional information on our outstanding debt and related hedging, see Notes 10 and 13 to our unaudited condensed consolidated financial statements in this Report.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures.

Pursuant to Rules 13a-15(e) and 15d-15(e) 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 our disclosure controls and procedures are effective at a reasonable assurance level to ensure that 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, to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting.

There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our 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 Condensed Consolidated Financial Statements — Note 19” in this Report.

Item 1A. Risk Factors

There have been no material changes to the risk factors associated with the business as previously disclosed in Part I, Item 1A of our 2019 annual report on Form 10-K, in Part II, Item 1A of our quarterly reports on Form 10-Q for the periods ended March 31, 2020 and June 30, 2020, and in our current report on Form 8-K filed on June 19, 2020 (collectively, our “existing risk factors”), except as set forth below. The risk factor set forth below updates, and should be read together with, our existing risk factors.

The integration of CPA Global may subject us to additional risks.

On October 1, 2020, we consummated the CPA Global combination transaction, and we are currently in the process of integrating CPA Global into our business. The integration process may be more complex, costly and time-consuming than we currently anticipate. The integration of the CPA Global business could also have the effect of exacerbating the risks discussed in our existing risk factors. Any such developments could have an adverse effect on our business, results of operations, financial condition and prospects, as well as the market price of our ordinary shares.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities


Period	Total Number of Shares Purchased (1)	Price Paid Per Share		Total Number of Shares Purchases As Part of Publicly Announced Plans or Programs	Number of Shares that May Yet Be Purchased Under Plans or Programs
January 1, 2020-January 31, 2020	373,138	$	3.71	—	—
February 1, 2020-February 29, 2020	313,254	$	7.76	—	—
March 1, 2020-March 31, 2020	1,615,066	$	4.99	—	—
April 1, 2020-April 30, 2020	274,469	$	9.72	—	—
May 1, 2020-May 31, 2020	155,575	$	7.46	—	—
June 1, 2020-June 30, 2020	1,881,249	$	5.36	—	—
July 1, 2020-July 31, 2020	69,738	$	6.78	—	—
August 1, 2020-August 31, 2020	688,092	$	10.15	—	—
September 1, 2020-September 30, 2020	1,427,088	$	11.27	—	—
Total	6,797,669			—

(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 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

EXHIBIT INDEX


Exhibit Number			Exhibit Description
10.1			Investor Rights Agreement dated as of October 1, 2020 (incorporated by reference to Exhibit 10.1 to Clarivate's Form 8-K filed October 1, 2020)
10.2			Registration Rights Agreement dated as of October 1, 2020 (incorporated by reference to Exhibit 10.2 to Clarivate's Form 8-K filed October 1, 2020)
10.3			Amendment to Credit Agreement dated October 1, 2020 (incorporated by reference to Exhibit 10.4 to Clarivate's Form 8-K filed October 1, 2020)
10.4 +*			Clarivate Analytics Plc 2019 Incentive Award Plan - Amended and Restated as of May 11, 2020
31			Certification of our Chief Executive Officer and our Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32			Certification of our Chief Executive Officer and our Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101			The following information from our Form 10-Q for the quarterly period ended September 30, 2020, formatted in Inline eXtensible Business Reporting Language: (i) Condensed Consolidated Statement of Comprehensive Income (unaudited), (ii) Condensed Consolidated Balance Sheet (unaudited), (iii) Condensed Consolidated Statement of Changes in Equity (unaudited), (iv) Condensed Consolidated Statement 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 September 30, 2020, formatted in Inline XBRL

*Filed herewith.

+Compensatory plan or arrangement

SIGNATURES

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 October 29, 2020.


CLARIVATE PLC
By:			/s/ Richard Hanks
			Name: Richard Hanks
			Title: Chief Financial Officer