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Section 1: 10-Q (10-Q)

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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 March 31, 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 ANALYTICS 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 April 30, 2020 was 365,097,108.
DOCUMENTS INCORPORATED BY REFERENCE
None
 



Table of Contents
 
Page
 
 
 
 


2



Cautionary Statement Regarding Forward-looking Statements
This interim 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 interim 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, including the DRG acquisition, 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 acquisition;

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;


3



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 interim 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.

4



Note on Defined Terms and Presentation
 
We employ a number of defined terms in this interim 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 interim report, unless otherwise indicated or the context otherwise requires, the terms “Clarivate,” the “Company,” “our,” “us” and “we” refer to Clarivate Analytics 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; 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 interim 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 interim 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 currently anticipate that we will retain FPI status until at least 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 (“GAAP”) and, we have elected to file our periodic and current reports on Forms 10-K, 10-Q and 8-K.
 
Industry and Market Data
 
The market data and other statistical information used throughout this interim report are based on industry publications and surveys, public filings and various government sources. Industry publications and surveys generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy or completeness of the included information. Statements as to our ranking, market position and market estimates (including estimates of the sizes and future growth rates of our markets) are based on independent industry publications, government publications, third-party forecasts and management’s good faith estimates and assumptions about our markets and our internal research. We have not independently verified such third-party information nor have we ascertained the underlying economic assumptions relied upon in those sources, and we are unable to assure you of the accuracy or completeness of such information contained in this interim report. While we are not aware of any misstatements regarding our market, industry or similar data presented herein, such data involve risks and uncertainties and are subject to change based on various factors. See “Item 1A. Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” in this interim report.

5



PART I. Financial Information
Item 1. Financial Statements and Supplementary Data
CLARIVATE ANALYTICS PLC
Interim Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except share data)

March 31,
2020

December 31,
2019
Assets




Current assets:




Cash and cash equivalents
$
308,021


$
76,130

Restricted cash
2,850


9

Accounts receivable, net of allowance for doubtful accounts of $15,072 and $16,511 at March 31, 2020 and December 31, 2019, respectively
343,177


333,858

Prepaid expenses
52,101


40,710

Other current assets
22,099


11,750

Asset held for sale

 
30,619

Total current assets
728,248


493,076

Computer hardware and other property, net
22,953


18,042

Other intangible assets, net
2,282,348


1,828,640

Goodwill
1,823,084


1,328,045

Other non-current assets
22,818


18,632

Deferred income taxes
15,646


19,488

Operating lease right-of-use assets
103,995


85,448

Total Assets
$
4,999,092


$
3,791,371





Liabilities and Shareholders’ equity



Current liabilities:



Accounts payable
$
28,583


$
26,458

Accrued expenses and other current liabilities
239,661


159,217

Current portion of deferred revenues
472,101


407,325

Current portion of operating lease liabilities
25,375


22,130

Current portion of long-term debt
12,600


9,000

Liabilities held for sale

 
26,868

Total current liabilities
778,320


650,998

Long-term debt
1,915,452


1,628,611

Non-current portion of deferred revenues
18,774


19,723

Other non-current liabilities
18,553


18,891

Deferred income taxes
94,638


48,547

Operating lease liabilities
80,229


64,189

Total liabilities
2,905,966


2,430,959

Commitments and contingencies



Shareholders’ equity:



Ordinary Shares, no par value; unlimited shares authorized at March 31, 2020 and December 31, 2019; 364,938,052 and 306,874,115 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively;
3,033,033


2,208,529

Accumulated other comprehensive income (loss)
(13,349
)

(4,879
)
Accumulated deficit
(926,558
)

(843,238
)
Total shareholders’ equity
2,093,126


1,360,412

Total Liabilities and Shareholders’ equity
$
4,999,092


$
3,791,371


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

6

CLARIVATE ANALYTICS PLC
Interim Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except share and per share data)


 
Three Months Ended March 31,
 
2020
 
2019
Revenues, net
$
240,592

 
$
234,025

 
 
 
 
Operating costs and expenses:
 
 
 
Cost of revenues, excluding depreciation and amortization
(82,399
)
 
(89,267
)
Selling, general and administrative costs, excluding depreciation and amortization
(86,948
)
 
(92,296
)
Share-based compensation expense
(17,469
)
 
(3,176
)
Depreciation
(2,329
)
 
(2,051
)
Amortization
(49,112
)
 
(56,106
)
Transaction expenses
(26,689
)
 
(10,270
)
Transition, integration and other related expenses
(2,232
)
 
(1,161
)
Restructuring
(7,754
)
 

Other operating income (expense), net
6,032

 
(5,617
)
Total operating expenses
(268,900
)
 
(259,944
)
Loss from operations
(28,308
)
 
(25,919
)
Interest expense, net
(30,940
)
 
(33,101
)
Loss before income tax
(59,248
)
 
(59,020
)
Provision for income taxes
(14,753
)
 
(240
)
Net loss
$
(74,001
)
 
$
(59,260
)
Per Share
 
 
 
Basic and diluted
$
(0.22
)
 
$
(0.27
)
Weighted-average shares outstanding
 
 
 
Basic and diluted
343,129,833

 
217,526,426


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

7

CLARIVATE ANALYTICS PLC
Interim Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(In thousands)

 
Three Months Ended March 31,
 
2020
 
2019
Net loss
$
(74,001
)
 
$
(59,260
)
Other comprehensive loss, net of tax:
 
 
 
Interest rate swaps
(2,890
)
 
(1,946
)
Actuarial gain (loss)
(67
)
 
19

Foreign currency translation adjustments
(5,513
)
 
(1,824
)
Total other comprehensive loss, net of tax
(8,470
)
 
(3,751
)
Comprehensive loss
$
(82,471
)
 
$
(63,011
)
 
 
 
 

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


8

CLARIVATE ANALYTICS PLC
Interim 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

 
 
 
 
 
 
 
 
 
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
)
Issuance of ordinary shares, net
58,063,937

808,120

 

 

 
808,120

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



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

9

CLARIVATE ANALYTICS PLC
Interim Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)


 
Three Months Ended March 31,
 
2020
 
2019
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net loss
$
(74,001
)
 
$
(59,260
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
51,441

 
58,157

Allowance for doubtful accounts and credit losses

 
689

Deferred income tax expense (benefit)
4,214

 
(3,946
)
Share-based compensation
16,502

 
3,176

Deferred finance charges
1,008

 
2,099

Other operating activities
(7,015
)
 
5,440

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
29,279

 
(13,362
)
Prepaid expenses
(7,349
)
 
(9,813
)
Other assets
54,644

 
(1,507
)
Accounts payable
758

 
4,942

Accrued expenses and other current liabilities
(12,035
)
 
(9,049
)
Deferred revenue
40,726

 
68,929

Operating lease right of use assets
5,919

 
5,696

Operating lease liabilities
(5,876
)
 
(5,750
)
Other liabilities
(52,109
)
 
(3,988
)
Net cash provided by operating activities
46,106

 
42,453

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Capital expenditures
(19,395
)
 
(5,957
)
Acquisition, net of cash acquired
(885,323
)
 

Proceeds from sale of product line, net of restricted cash
3,751

 

Net cash used in investing activities
(900,967
)
 
(5,957
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Repayment of principal on long-term debt
(3,150
)
 
(3,836
)
Repayment of revolving credit facility
(65,000
)
 
(30,000
)
Contingent purchase price payment
(4,115
)
 

Payment of debt issuance costs
(5,014
)
 

Proceeds from issuance of debt
360,000

 

Proceeds from issuance of ordinary shares
540,597

 

Payments related to tax withholding for stock-based compensation
(10,420
)
 
 
Issuance of ordinary shares, net
278,708

 

Net cash provided by (used in) financing activities
1,091,606

 
(33,836
)
Effect of exchange rate changes on cash and cash equivalents, and restricted cash
(2,013
)
 
(190
)
Net increase (decrease) in cash and cash equivalents, and restricted cash
234,732

 
2,470

 
 
 
 
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
310,871

 
28,054

 
 
 
 
Cash and cash equivalents
308,021

 
28,045

Restricted cash
2,850

 
9


10

CLARIVATE ANALYTICS PLC
Interim Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)


 
Three Months Ended March 31,
 
2020
 
2019
Total cash and cash equivalents, and restricted cash, end of period
$
310,871

 
$
28,054

 
 
 
 
SUPPLEMENTAL CASH FLOW INFORMATION
 
 
 
Cash paid for interest
$
11,405

 
$
21,023

Cash paid for income tax
$
4,797

 
$
7,789

Capital expenditures included in accounts payable
$
9,528

 
$
6,836


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

11

CLARIVATE ANALYTICS PLC
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share data, option price amounts, ratios, or as noted)


Note 1: Background and Nature of Operations
Clarivate Analytics Plc (“Clarivate,” “us,” “we,” “our,” or the “Company”), a public limited company organized under the laws of Jersey, Channel Islands, was incorporated as a Jersey limited company on January 7, 2019. 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 customer’s 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.

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") continue 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 and BPEA immediately after the closing of our merger with Churchill Capital Corp in 2019.
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.

12

CLARIVATE ANALYTICS PLC
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share data, option price amounts, ratios, or as noted)

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 Interim Condensed Consolidated Financial Statements were prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The Interim 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 Interim 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 months ended March 31, 2020 and 2019 are not necessarily indicative of the operating results for the full year.
In the opinion of management, the interim financial data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods presented. The Interim 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 the policy regarding the recognition of expected credit losses and for our accounts receivables portfolio as follows.
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 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.
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 Interim Condensed Consolidated Balance Sheet as of January 1, 2020.

13

CLARIVATE ANALYTICS PLC
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share data, option price amounts, ratios, or as noted)

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 prospective adopted the standard on January 1, 2020. This standard did not have a material impact on the Company’s Interim 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 Interim 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 March 2020, the FASB issued ASU 2020-04, Reference Rate Reform, which provide 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 during the period March 12, 2020 through December 31, 2022. The Company is currently in the process of evaluating the potential impact of the adoption of this standard on its Interim Condensed Consolidated Financial Statements.
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 14 — "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

14

CLARIVATE ANALYTICS PLC
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share data, option price amounts, ratios, or as noted)

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.
Certain restrictions were removed following the Secondary Offering on August 14, 2019. See Note 15 — "Employment and Compensation Arrangements" for further information. After giving effect to the satisfaction of the vesting restrictions, the Company Owners held approximately 60% of the issued and outstanding shares of the Company at the close of the 2019 Transaction. See Note 14 — "Shareholders' Equity" for further information on equity instruments.
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. As of March 31, 2020, the fair value of the contingent stock consideration increased by $1,187 which was recorded to Transaction expenses in the Interim Condensed Consolidated Statement of Operations and increased the corresponding liability to $60,084 which was recorded to Accrued expenses and other current liabilities in the Interim Condensed Consolidated Balance Sheet. See Note 18 — "Commitments and Contingencies” for more information. The DRG acquisition was accounted for using the 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 $19,762 for the three months ended March 31, 2020.

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 Income during the three months ended March 31, 2020 were as follows:
Revenues, net (1)
$
17,044

Net loss attributable to the Company's stockholders
$
(606
)
(1) Includes $1,534 of a deferred revenue haircut recognized during the quarter ended March 31, 2020.  


15

CLARIVATE ANALYTICS PLC
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share data, option price amounts, ratios, or as noted)

The purchase price allocation for this acquisition as of the close date of February 28, 2020 is preliminary and may change upon completion of the determination of fair value of assets acquired and liabilities assumed. The following table summarizes the preliminary purchase price allocation for this acquisition:
 
Total
Current assets
$
124,489

Computer hardware and other property
4,302

Other intangible assets(1)
491,366

Other non-current assets
2,960

Operating lease right-of-use assets
25,099

Total assets
$
648,216

Current liabilities
3,474

Accrued expenses and other current liabilities
37,930

Current portion of deferred revenue
35,126

Deferred income taxes
47,467

Non-current portion of deferred revenue
628

Other non-current liabilities
52,908

Operating lease liabilities
25,529

Total liabilities
203,062

Fair value of acquired identifiable assets and liabilities
$
445,154

(1)Includes $3,966 of internally developed software in progress acquired. 
 
Purchase price, net of cash(2)
944,220

Less: Fair value of acquired identifiable assets and liabilities
445,154

Goodwill
$
499,066

(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

 
 

Unaudited pro forma information for the Company for the three months ended March 31, 2020 and 2019 as if the acquisition had occurred January 1, 2019 is as follows:
 
Three Months Ended March 31,
 
2020
 
2019
Pro forma revenues, net
265,341

 
267,800

Pro forma net loss attributable to the Company's stockholders
(64,438
)
 
(100,501
)


16

CLARIVATE ANALYTICS PLC
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share data, option price amounts, ratios, or as noted)

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 $24,926 for the three months ended March 31, 2020 and increased expenses by $25,365 for the three months ended March 31, 2019.
Note 5: Divested Operations
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 income (expense), net during the three months ended March 31, 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 March 31, 2020 and December 31, 2019:
 
March 31,
 
December 31,
 
2020
 
2019
Accounts receivable
358,249

 
350,369

Less: Accounts receivable allowance
(15,072
)
 
(16,511
)
Accounts receivable, net
$
343,177

 
$
333,858


 
 
 
 

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 for the three months ended March 31, 2020, and the year ended 2019, respectively.

17

CLARIVATE ANALYTICS PLC
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share data, option price amounts, ratios, or as noted)

 
March 31,
 
2020
Balance at beginning of year
16,511

Additional provisions

Write-offs
(11,043
)
Opening balance sheet adjustment related to ASU 2016 -13 adoption
10,097

Exchange differences
(493
)
Balance at the end of year
$
15,072


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 $11,043 and $2,321 for the three months ended March 31, 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 months ended March 31, 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 material.
Note 7: Computer Hardware and Other Property, net
Computer hardware and other property, net consisted of the following:

 
March 31, 2020
 
December 31, 2019
Computer hardware
$
26,982

 
$
24,620

Leasehold improvements
15,352

 
12,496

Furniture, fixtures and equipment
6,175

 
4,412

Total computer hardware and other property
48,509

 
41,528

Accumulated depreciation
(25,556
)
 
(23,486
)
Total computer hardware and other property, net
$
22,953

 
$
18,042



Depreciation expense amounted to $2,329 and $2,051 for the three months ended March 31, 2020 and 2019, respectively.
Note 8: 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:
 
March 31, 2020
 
 
December 31, 2019
 
Gross
 
Accumulated
Amortization
 
Net
 
 
Gross
 
Accumulated
Amortization
 
Net
Finite-lived intangible assets
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
$
656,500

 
$
(182,765
)
 
$
473,735

 
 
$
280,493

 
$
(180,571
)
 
$
99,922

Databases and content
1,802,169

 
(370,220
)
 
1,431,949

 
 
1,755,323

 
(342,385
)
 
1,412,938

Computer software
330,318

 
(152,114
)
 
178,204

 
 
285,701

 
(135,919
)
 
149,782

Trade names
6,770

 

 
6,770

 
 
1,570

 

 
1,570

Backlog
27,999

 
(584
)
 
27,415

 
 

 

 

Finite-lived intangible assets
2,823,756

 
(705,683
)
 
2,118,073

 
 
2,323,087

 
(658,875
)
 
1,664,212

Indefinite-lived intangible assets
 
 
 
 
 
 
 
 
 
 
 
 
Trade names
164,275

 

 
164,275

 
 
164,428

 

 
164,428

Total intangible assets
$
2,988,031

 
$
(705,683
)
 
$
2,282,348

 
 
$
2,487,515

 
$
(658,875
)
 
$
1,828,640



18

CLARIVATE ANALYTICS PLC
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share data, option price amounts, ratios, or as noted)


Amortization expense amounted to $49,112 and $56,106 for the three months ended March 31, 2020, and 2019, respectively.
Goodwill
The following table summarizes changes in the carrying amount of goodwill for the three months ended March 31, 2020:    
 
Total
Balance as of December 31, 2019
$
1,328,045

Acquisitions
499,067

Changes due to foreign currency fluctuations
(4,028
)
Balance as of March 31, 2020
$
1,823,084


Note 9: Derivative Instruments
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. 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 income (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 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 $8,372 at March 31, 2020 and a liability of $2,778 at 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. In total, the company collected $1,737 for the amendments of these derivatives, $533 of which was collected in April 2020. 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.
For the three months ended March 31, 2020, the Company had a period of ineffectiveness related to the cash flow hedges. The ineffectiveness was due to a drop in LIBOR rates below the LIBOR floor defined per the credit facilities, which were amended as of March 31, 2020 resulting in a highly effective hedge. As a result of the ineffectiveness, the Company recognized a loss of $979 which was recorded to Interest expense, net on the Statement of Operations. As of March 31, 2020 there was no hedge ineffectiveness associated with the Company’s interest rate swaps.
See Note 10 — "Fair Value Measurements" for additional information on derivative instruments.
The following table summarizes the changes in AOCI (net of tax) related to cash flow hedges for the three months ended March 31, 2020:
AOCI balance at December 31, 2019
$
(2,778
)
Derivative gains (losses) recognized in other comprehensive income (loss)
(3,160
)
Amount reclassified out of other comprehensive income (loss) to net loss
270

AOCI balance at March 31, 2020
$
(5,668
)

The following table summarizes the changes in AOCI (net of tax) related to cash flow hedges for the three months ended March 31, 2019:
AOCI balance at December 31, 2018
$
3,644

Derivative gains (losses) recognized in other comprehensive income (loss)
(2,376
)
Amount reclassified out of other comprehensive income (loss) to net loss
430

AOCI balance at March 31, 2019
$
1,698



Note 10: 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:
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than quoted prices include 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 support 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 interest rate swaps. 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 9 — "Derivative Instruments" for additional information.

19

CLARIVATE ANALYTICS PLC
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share data, option price amounts, ratios, or as noted)

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 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 for the year ended December 31, 2018. The amount of the earn-outs approximate fair value due to their short term nature of their remaining payments as of March 31, 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 March 31, 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 over a 1-year and 3-year period, respectively, including number of cumulative users, cumulative reviews and annual revenue. Changes in the earn out are recorded to Transaction expenses in the Interim Condensed Consolidated Statement of Operations. There were no transfers of assets or liabilities between levels during the periods ended March 31, 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 March 31, 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 Interim Condensed Consolidated Statement of Operations. There were no transfers of assets or liabilities between levels during the periods ended March 31, 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 observable market data and other indirect observable market inputs and thus represents a Level 2 measurement as defined in ASC 820.

20

CLARIVATE ANALYTICS PLC
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share data, option price amounts, ratios, or as noted)

The following table presents the changes in the earn-out, the only Level 3 item, for the three months ended March 31, 2020 and 2019, respectively:

 
December 31, 2019
$
11,100

Payment of Earn-out liability (1)
(8,000
)
Revaluations included in earnings
380

March 31, 2020
$
3,480

 
 
The following table presents the changes in the earn-out, the only Level 3 item, for the three months ended March 31, 2019:

 
December 31, 2018
$
7,075

Payment of Earn-out liability 

Revaluations included in earnings

March 31, 2019
$
7,075

(1) See Note 18 - “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 March 31, 2020 and December 31, 2019:

Level 1
 
Level 2
 
Level 3
 
Total Fair Value
March 31, 2020
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Interest rate swap liability
$

 
$
8,372

 
$

 
$
8,372

Earn-out liability

 

 
3,480

 
3,480

Contingent stock liability

 
60,084

 
$

 
60,084

  Total
$

 
$
68,456

 
$
3,480

 
$
71,936


 
 
 
 
 
 
 

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 determines the estimated fair value of finite-lived intangible assets by determining the present value of the expected cash flows.
 
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.
 

21

CLARIVATE ANALYTICS PLC
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share data, option price amounts, ratios, or as noted)

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 performs qualitative analysis of macroeconomic conditions, industry and market considerations, internal cost factors, financial performance, fair value history and other company specific events. If this qualitative analysis indicates that it is more likely than not that the estimated fair value is less than the book value for the respective reporting unit, the Company applies a two-step impairment test in which the Company determines whether the estimated fair value of the reporting unit is in excess of its carrying value. If the carrying value of the net assets assigned to the reporting unit exceeds the estimated fair value of the reporting unit, the Company performs the second step of the impairment test to determine the implied estimated fair value of the reporting unit’s goodwill. The Company determines the implied estimated fair value of goodwill by determining the present value of the estimated future cash flows for each reporting unit and comparing the reporting unit’s risk profile and growth prospects to selected, reasonably similar publicly traded companies.
Note 11: Pension and Other Post-Retirement Benefits
The components of net periodic benefit cost recognized in other comprehensive loss were as follows:
 
Three Months Ended March 31,
 
2020
 
2019
Service cost
$
226

 
$
221

Interest cost
79

 
78

Expected return on plan assets
(40
)
 
(40
)
Amortization of actuarial gains
(19
)
 
(18
)
Net periodic benefit cost
$
246

 
$
241


Interest cost and expected return on plan assets are recorded in Interest expense, net on the accompanying Interim Condensed Consolidated Statements of Operations.
Note 12: Debt
The following is a summary of the Company’s debt:     
 
 
 
March 31, 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
 
4.360
%
 
1,256,850

 
5.049
%
 
900,000

Revolving credit facility
2024
 
%
 
0

 
5.049
%
 
65,000

      Total debt outstanding
 
 
 
 
1,956,850

 
 
 
1,665,000

Deferred financing charges
 
 
 
 
(26,670
)
 
 
 
(25,205
)
Term loan facility, discount
 
 
 
 
(2,128
)
 
 
 
(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
 
 
 
 
$
1,915,452

 
 
 
$
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 requirements of the existing term loan facility as described in the annual 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 it's expiration on closing of the acquisition.
During the three months ended March 31, 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 negative 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 March 31, 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.

22

CLARIVATE ANALYTICS PLC
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share data, option price amounts, ratios, or as noted)

As of March 31, 2020, letters of credit totaling $4,929 were collateralized by the revolving credit facility. Notwithstanding the revolving credit facility, as of March 31, 2020, the Company had an unsecured corporate guarantee outstanding for $9,646 and cash collateralized letters of credit totaling $36, 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 bench mark 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 $1,872,292 and $1,692,750 at March 31, 2020 and December 31, 2019, respectively. The debt is considered a Level 2 liability under the fair value hierarchy.
Note 13: Revenue
The tables below show the Company's disaggregated revenues for the periods presented:
 
Three Months Ended March 31,
 
2020
 
2019
Subscription revenues
$
193,235

 
$
192,492

Transactional revenues
49,239

 
41,697

Total revenues, gross
242,474

 
234,189

Deferred revenues adjustment(1)
(1,882
)
 
(164
)
Total revenues, net
$
240,592

 
$
234,025

(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 (3/31/2020)
343,177

 
472,101

 
18,774

(Increase)/decrease
$
(9,319
)
 
$
(64,776
)
 
$
949

 
 
 
 
 
 
Opening (1/1/2019)
$
331,295

 
$
391,102

 
$
17,112

Closing (3/31/2019)
343,113

 
461,928

 
17,987

(Increase)/decrease
$
(11,818
)
 
$
(70,826
)
 
$
(875
)

The amount of revenue recognized in the period that were included in the opening deferred revenues current and long-term balances were $105,150. This revenue consists primarily of subscription revenue.
Transaction Price Allocated to the Remaining Performance Obligation
As of March 31, 2020, approximately $62,328 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 65% of these performance obligations over the next 12 months. Of the remaining 35%, 21% is expected to be recognized within the following year, with the final 14% expected to be recognized within years 3 to 10.
Note 14: 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

23

CLARIVATE ANALYTICS PLC
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share data, option price amounts, ratios, or as noted)

receive a corresponding number of options to acquire additional ordinary shares subject to five year vesting. See Note 15 — “Employment and Compensation Arrangements” for additional detail related to the options. The Company received no net subscriptions for the three months ended March 31, 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 15 — “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 March 31, 2020 there were unlimited ordinary shares authorized, and 364,938,052 shares issued and outstanding, with a par value of $0.00. The Company did not hold any shares as treasury shares as of March 31, 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 and remain 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 March 31, 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. All such Merger Shares are expected to be issued to persons designated by Jerre Stead and Michael Klein prior to December 31, 2020.
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 closing. See Note 4 — “Business Combinations” for additional details.
Note 15: 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 14 — “Shareholders’ Equity” for additional information.

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 March 31, 2020 37,302,599 awards had been granted.
 
A summary of the Company’s share-based compensation is as follows:

24

CLARIVATE ANALYTICS PLC
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share data, option price amounts, ratios, or as noted)

 
Three Months Ended March 31,
 
2020
 
2019
Share-based compensation expense
$
17,469

 
$
3,176

Tax benefit recognized
$
(2
)
 
$
78


 
 
 
 
In the three months ended March 31, 2020, the Company recognized additional Share-based compensation expense related to the modification of certain awards under the 2019 Incentive Award Plan. As of March 31, 2020, there was $4,909 of total unrecognized compensation cost, related to outstanding stock options, which is expected to be recognized through 2024 with a remaining weighted-average service period of 2.1 years.

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
Balance at December 31, 2019
20,880,225

 
$
12.18

 
7.3
 
$
105,119

Forfeited
(334,295
)
 
13.95

 
0
 

Exercised
(3,715,455
)
 
9.53

 
0
 

Outstanding as of March 31, 2020
16,830,475

 
$
12.73

 
6.9
 
$
137,329

Vested and exercisable at March 31, 2020
11,605,933

 
$
12.79

 
6.5
 
$
92,785



The aggregate intrinsic value in the table above represents the difference between the closing price of the Company's common shares on March 31, 2020 and the exercise price of each in-the-money option. There were 3,715,455 stock options exercised in the three months ended March 31, 2020. The tax benefit from the exercised options was $1,372.

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.

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 common shares on the date of grant. 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.

25

CLARIVATE ANALYTICS PLC
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share data, option price amounts, ratios, or as noted)

 
Number of Shares
 
Weighted Average Grant Date Fair Value per Share
Outstanding as of December 31, 2019
293,182

 
$
16.75

Vested
(169,842
)
 
16.86

Outstanding as of March 31, 2020
123,340

 
$
16.60


The total fair value of RSUs that vested during the three months ended March 31, 2020 was $2,863.
2019 Transaction Related Awards
Upon consummation of the 2019 Transaction, there were 7,000,000 ordinary shares of Clarivate that are 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. On January 31, 2020, our Board agreed to waive this performance vesting condition, and all such merger shares are expected to be issued to persons designated by Messrs. Stead and Klein on or prior to December 31, 2020. We used a third-party specialist to fair value the awards at the modification date using the Monte Carlo simulation approach. The assumptions in the model include, but are not limited to, risk-free interest rate, 1.33%; expected volatility of the Company's and the peer group's stock prices, 20.00%; and dividend yield, 0.00%. The Company recognized $13,720 expense in Share-based compensation expense as a result of the waived performance vesting conditions.

In accordance with the terms of the sponsor agreement and in connection with our merger with Churchill in 2019, the merger shares are issued to persons designated by Messrs Stead and Klein. The Company has evaluated and recorded additional stock compensation expense as required upon the assignment of merger shares as applicable.
Note 16: Income Taxes
During the three months ended March 31, 2020 and 2019, the Company recognized an income tax provision of $14,753 on loss before income tax of $59,248 and $240, on loss before income tax of $59,020, respectively. The tax provision in each period three months ended March 31, 2020, and March 31, 2019, respectively, reflects the mix of taxing jurisdictions in which pre-tax profits and losses were recognized.
Note 17: Earnings per Share
Potential common shares of 38,149,453 of Private Placement Warrants, DRG Transaction Shares, options and RSUs related to the Incentive Award Plan were excluded from diluted EPS for the three months ended March 31, 2020 and potential common shares of 24,323,190 of options were excluded from diluted EPS for the three months ended March 31, 2019 as the Company had net losses in both periods and their inclusion would be anti-dilutive. See Note 14 — "Shareholders' Equity" and Note 15 — "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 March 31,
 
2020
 
2019
Basic/Diluted EPS
 
 
 
Net loss available to common stockholders
$
(74,001
)
 
$
(59,260
)
Basic and diluted weighted-average number of ordinary shares outstanding
343,129,833

 
217,526,426

Basic and diluted EPS
$
(0.22
)
 
$
(0.27
)


26

CLARIVATE ANALYTICS PLC
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share data, option price amounts, ratios, or as noted)

 
 
 
 

Note 18: 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 and $2,371 of the contingent purchase price in the quarter ended March 31, 2020 and year ended December 31, 2019, respectively. The Company had an outstanding liability for $3,480 and $3,100 related to the estimated fair value of this contingent consideration included in Accrued expenses and other current liabilities in the Interim Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019, respectively.
In conjunction with the acquisition of Kopernio, the Company agreed to pay former shareholders up to an additional $3,500 through 2021. Amounts payable are contingent upon Kopernio’s achievement of certain milestones and performance metrics and will be recognized over the concurrent service period.

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 quarter ended March 31, 2020, the Company paid $8,000 of the contingent purchase price to complete the earn-out. As of March 31, 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 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 $1,187 since the acquisition date due to an increase in the estimated fair value of this contingent stock consideration, which resulted in a liability of $60,084 as of March 31, 2020. The outstanding balance was included in Accrued expenses and other current liabilities in the Interim Condensed Consolidated Balance Sheets as of March 31, 2020.
Note 19: 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 Company is provided certain ongoing strategic and financing consulting services in exchange for a quarterly management fee. In connection with this agreement, the Company recognized $0 and $231 for the three months ended March 31, 2020, and 2019. The Company pays 0.1% interest per annum to Onex for the Credit Agreement. The Company recognized $0 and $215 for the three months ended March 31, 2020 and 2019, respectively, in interest expense for the Onex related interest. The Company had an outstanding liability of $20 and $3 to Onex as of March 31, 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.

27

CLARIVATE ANALYTICS PLC
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share data, option price amounts, ratios, or as noted)

BPEA, an affiliate of the Company, is considered a related party. Concurrently with the 2016 Transaction, 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 and $167 for the three months ended March 31, 2020, and 2019, respectively, in operating expenses related to this agreement. The Company had an outstanding liability of $0 and $0 to Baring as of March 31, 2020, and December 31, 2019, respectively. 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 the 2016 Transaction, 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.
A controlled affiliate of Baring is a vendor of ours. Total payments to this vendor were $18 and $240 for the three months ended March 31, 2020 and 2019 respectively. The Company had an outstanding liability of $173 and $160 as of March 31, 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 for the three months ended March 31, 2020. The Company had an outstanding liability of $0 and $10 as of March 31, 2020 and December 31, 2019, respectively. This vendor was not a related party during the three months ended March 31, 2020 or 2019.
A former member of our key management is the Co-founder of a vendor of ours. Total payments to this vendor were $0 and $78 for the three months ended March 31, 2020 and 2019, and the Company had no outstanding liability as of March 31, 2020 and December 31, 2019. This vendor was not a related party during the three months ended March 31, 2019.
Note 20: Restructuring
In accordance with the applicable guidance for ASC 420, Exit or Disposal Cost Obligations, we accounted for termination benefits and recognized liabilities when the loss was considered probable, employees were entitled to benefits and the amounts could be reasonably estimated. We have incurred costs in connection with involuntary termination benefits associated with our corporate-related initiatives and cost-saving opportunities. These amounts are recorded within Restructuring in the Consolidated Statements of Operations. The payments associated with these actions are expected to be completed within 12 months from the balance sheet date.
The following table summarizes the activity related to the restructuring reserves and expenses for the three months ended March 31, 2020.
Balance as of December 31, 2019
$
9,506

Expenses recorded
7,754

Payments made
(