Verisk(VRSK) - 2023 Q2 - Quarterly Report

Part I This part presents unaudited condensed consolidated financial statements and notes, detailing financial position, performance, and cash flows after strategic dispositions Item 1. Financial Statements (unaudited) This section provides the unaudited condensed consolidated financial statements and comprehensive notes, reflecting the company's financial status and performance Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and stockholders' equity at specific points in time | Metric | June 30, 2023 (in millions) | December 31, 2022 (in millions) | | :----------------------------------- | :-------------------------- | :-------------------------- | | Total Assets | $4,315.7 | $6,961.1 | | Total Liabilities | $4,009.9 | $5,193.4 | | Total Stockholders' Equity | $305.8 | $1,767.7 | | Cash and cash equivalents | $308.7 | $112.5 | | Current assets held-for-sale | $— | $362.6 | | Noncurrent assets held-for-sale | $— | $2,728.6 | | Short-term debt and current portion of long-term debt | $3.4 | $1,392.9 | - Total assets and stockholders' equity significantly decreased primarily due to the reclassification and subsequent sale of assets held-for-sale[11] Condensed Consolidated Statements of Operations This section outlines the company's financial performance over periods, including revenues, operating income, and net income from continuing and discontinued operations Three Months Ended June 30 | Metric | 2023 (in millions) | 2022 (in millions) | Change (%) | | :----------------------------------- | :----------------- | :----------------- | :--------- | | Revenues | $675.0 | $612.8 | 10.1% | | Operating income | $306.0 | $247.6 | 23.6% | | Income from continuing operations | $204.3 | $173.6 | 17.7% | | (Loss) income from discontinued operations | $(7.5) | $24.2 | (131.0)% | | Net income attributable to Verisk | $196.9 | $197.7 | (0.4)% | | Basic EPS from continuing operations | $1.41 | $1.10 | 28.2% | | Diluted EPS from continuing operations | $1.41 | $1.09 | 29.4% | Six Months Ended June 30 | Metric | 2023 (in millions) | 2022 (in millions) | Change (%) | | :----------------------------------- | :----------------- | :----------------- | :--------- | | Revenues | $1,326.6 | $1,256.4 | 5.6% | | Operating income | $600.1 | $870.4 | (31.1)% | | Income from continuing operations | $398.7 | $660.6 | (39.6)% | | (Loss) income from discontinued operations | $(145.5) | $43.0 | (438.4)% | | Net income attributable to Verisk | $253.2 | $703.4 | (64.0)% | | Basic EPS from continuing operations | $2.69 | $4.14 | (35.0)% | | Diluted EPS from continuing operations | $2.67 | $4.12 | (35.2)% | - Weighted-average basic shares outstanding decreased by 8.3% for the three months and 6.8% for the six months ended June 30, 2023, compared to the prior year[12] Condensed Consolidated Statements of Comprehensive Income (Loss) This section reports comprehensive income (loss), including net income and other comprehensive income items not recognized in the income statement Comprehensive Income (Loss) Attributable to Verisk | Period | 2023 (in millions) | 2022 (in millions) | | :----------------------------------- | :----------------- | :----------------- | | Three Months Ended June 30 | $213.1 | $(20.7) | | Six Months Ended June 30 | $1,030.0 | $414.6 | - A significant positive foreign currency translation adjustment of $775.2 million for the six months ended June 30, 2023, contributed to the increase in comprehensive income[14] Condensed Consolidated Statements of Changes in Stockholders' Equity This section details changes in stockholders' equity, reflecting impacts from net income, dividends, share repurchases, and other comprehensive income Total Stockholders' Equity | Date | Amount (in millions) | | :------------------- | :------------------- | | January 1, 2023 | $1,767.7 | | June 30, 2023 | $305.8 | | January 1, 2022 | $2,842.5 | | June 30, 2022 | $2,370.0 | - The decrease in stockholders' equity for the six months ended June 30, 2023, was primarily driven by $2,538.8 million in treasury stock acquisitions and $98.5 million in common stock dividends[17] - Other comprehensive income (loss) shifted from a loss of $731.2 million at December 31, 2022, to an income of $45.7 million at June 30, 2023[17][76] Condensed Consolidated Statements of Cash Flows This section summarizes cash inflows and outflows from operating, investing, and financing activities, illustrating liquidity and capital management Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity | 2023 (in millions) | 2022 (in millions) | Change (%) | | :----------------------------------- | :----------------- | :----------------- | :--------- | | Net cash provided by operating activities | $558.2 | $529.8 | 5.4% | | Net cash provided by investing activities | $2,858.8 | $451.1 | 533.7% | | Net cash used in financing activities | $(3,401.8) | $(761.0) | 347.0% | - Investing activities saw a substantial increase in cash provided, primarily due to $3,066.4 million in proceeds from the sale of the Energy business[19][187] - Financing activities resulted in a significant cash outflow, driven by $2,500.0 million for accelerated share repurchases and $1,390.0 million in debt repayments[19][189] Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations and additional information supporting the condensed consolidated financial statements Note 1. Organization This note describes the company's business and its strategic role as a data analytics and technology partner to the global insurance industry - Verisk Analytics, Inc. is a strategic data analytics and technology partner to the global insurance industry, focusing on operating efficiency, underwriting/claims outcomes, fraud combat, and global risk decisions[21] Note 2. Basis of Presentation and Summary of Significant Accounting Policies This note outlines the basis of financial statement preparation and summarizes the significant accounting policies applied by the company - The financial statements are prepared under U.S. GAAP, involving significant management estimates[22] - The Energy business was classified as discontinued operations in Q4 2022 and sold on February 1, 2023, with prior periods recast[24] - ASU No. 2023-01 (Leases) is not expected to have a material impact on consolidated financial statements[25] Note 3. Revenues This note provides a breakdown of revenues by segment and geography, along with details on contract liabilities and revenue recognition Revenues by Segment (Six Months Ended June 30) | Segment | 2023 (in millions) | 2022 (in millions) | | :-------------------------- | :----------------- | :----------------- | | Insurance | $1,326.6 | $1,196.4 | | Energy and Specialized Markets | $— | $22.4 | | Financial Services | $— | $37.6 | | Total revenues | $1,326.6 | $1,256.4 | Revenues by Geography (Six Months Ended June 30, 2023) | Region | Amount (in millions) | | :-------------- | :----------------- | | United States | $1,115.2 | | United Kingdom | $91.9 | | Other countries | $119.5 | | Total revenues | $1,326.6 | - Contract liabilities (deferred revenues) increased from $321.7 million at December 31, 2022, to $468.7 million at June 30, 2023[28][29] Note 4. Investments and Fair Value Measurements This note details the company's investments and fair value measurements, including classifications and valuation methodologies - Investments in registered investment companies (Level 1 assets) were $2.5 million at June 30, 2023, down from $4.0 million at December 31, 2022[33] - Securities without readily determinable market values (accounted for at cost) were $200.9 million at June 30, 2023[34] - The fair value of senior notes (Level 2) was $2,663.7 million at June 30, 2023, compared to a carrying value of $2,832.7 million[34] Note 5. Leases This note provides information on the company's lease arrangements, including lease costs, remaining terms, and present value of payments Total Lease Cost (Six Months Ended June 30) | Lease Type | 2023 (in millions) | 2022 (in millions) | | :-------------------------- | :----------------- | :----------------- | | Operating lease cost | $17.4 | $25.2 | | Finance lease costs | $7.1 | $6.9 | | Total lease cost | $23.8 | $31.0 | - Weighted-average remaining lease terms are 8.7 years for operating leases and 4.4 years for finance leases as of June 30, 2023[35] - The present value of total operating lease payments was $234.1 million as of June 30, 2023[36] Note 6. Acquisitions This note details recent acquisitions, including purchase prices, goodwill, intangible assets acquired, and contingent payment obligations - Acquired Krug Sachverständigen GmbH for $43.3 million and Mavera Holding AB for $28.3 million in 2023, expanding claims and casualty offerings in Europe[37][38] - Total goodwill from 2023 acquisitions was $57.7 million, and total intangible assets acquired were $33.7 million[39][40] - Acquisition-related contingent payments (current portion) decreased to $8.0 million at June 30, 2023, from $29.9 million at December 31, 2022[43] Note 7. Dispositions and Discontinued Operations This note describes the sale of the Energy business and its classification as discontinued operations, including related financial impacts - The sale of the Energy business was completed on February 1, 2023, for a net cash sale price of $3,066.4 million[45] - A loss of $128.4 million was recognized from the sale of the Energy business, with an additional $6.9 million loss in Q2 2023 from closing adjustments[46] Financial Results from Discontinued Operations (Six Months Ended June 30) | Metric | 2023 (in millions) | 2022 (in millions) | | :----------------------------------- | :----------------- | :----------------- | | Revenues | $46.8 | $265.4 | | Operating (loss) income | $(139.8) | $41.3 | | (Loss) income from discontinued operations, net of income taxes | $(145.5) | $43.0 | Note 8. Goodwill and Intangible Assets This note provides details on goodwill and intangible assets, including changes due to acquisitions, foreign currency, and impairment assessments - Goodwill for the Insurance segment increased to $1,755.2 million at June 30, 2023, driven by 2023 acquisitions ($57.7 million) and foreign currency translation adjustments ($21.6 million)[50] - Total intangible assets, net, increased to $508.0 million at June 30, 2023, from $504.8 million at December 31, 2022[53] - No additional impairment charges were recognized for goodwill or indefinite-lived intangible assets as of June 30, 2023[51] Note 9. Income Taxes This note explains the company's income tax provisions, including effective tax rates and factors influencing tax expenses Effective Tax Rate | Period | 2023 | 2022 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | 23.8% | 19.2% | | Six Months Ended June 30 | 25.4% | 17.9% | - The increase in effective tax rates was primarily due to lower tax benefits from equity compensation and tax charges incurred in structuring the Energy business sale[57] Note 10. Debt This note details the company's debt structure, including total debt, new issuances, repayments, and revolving credit facility terms - Total debt decreased to $2,845.5 million at June 30, 2023, from $3,736.1 million at December 31, 2022[58] - Issued $500.0 million in 5.75% senior notes due 2033 on March 3, 2023[60] - The Syndicated Revolving Credit Facility's maturity was extended to April 5, 2028, with $995.5 million available capacity as of June 30, 2023[62][63] Note 11. Stockholders' Equity This note provides a comprehensive overview of changes in stockholders' equity, including dividends, share repurchases, and accumulated other comprehensive income - Cash dividends of $0.34 per share were approved for Q1 and Q2 2023, totaling $98.7 million paid for the six months ended June 30, 2023[68] - Entered into a $2.5 billion Accelerated Share Repurchase (ASR) agreement in March 2023, leading to the repurchase of 10,902,788 shares for $2,100 million during the six months[69][70] - Accumulated other comprehensive income (loss) improved from a loss of $731.2 million at December 31, 2022, to an income of $45.7 million at June 30, 2023, largely due to foreign currency translation adjustments[76][78] Note 12. Equity Compensation Plans This note details the company's equity compensation plans, including shares reserved, stock option exercises, and unrecognized compensation costs - 13,379,717 shares of common stock were reserved and available for future issuance under the 2021 Incentive Plan as of June 30, 2023[80] - Cash received from stock option exercises for the six months ended June 30, 2023, was $114.9 million, up from $93.0 million in the prior year[80] - Total unrecognized compensation costs related to nonvested stock-based compensation were $107.1 million, expected to be recognized over a weighted average period of 2.45 years[86] Note 13. Pension and Postretirement Benefits This note provides information on the company's pension and postretirement benefit plans, including net periodic benefit costs and investment guidelines - Net periodic benefit for the Pension Plan and SERP improved to $(0.7) million for the six months ended June 30, 2023, from $(8.2) million in the prior year[91] - Investment guidelines for the Pension Plan assets were changed to target 40% equity securities and 60% debt securities[90] Note 14. Segment Reporting This note outlines the company's reportable segments, focusing on the Insurance segment following the disposition of other businesses - As of February 1, 2023, Verisk operates as one reportable segment: Insurance, following the disposition of other segments[99] Insurance Segment Revenues (Six Months Ended June 30) | Category | 2023 (in millions) | 2022 (in millions) | Change (%) | | :-------------------------- | :----------------- | :----------------- | :--------- | | Underwriting | $938.6 | $853.8 | 9.9% | | Claims | $388.0 | $342.6 | 13.3% | | Total Insurance | $1,326.6 | $1,196.4 | 10.9% | - Insurance segment EBITDA for the six months ended June 30, 2023, was $720.4 million, an increase of 13.8%, with an EBITDA margin of 54.3%[101][171] - Underwriting revenue growth was primarily due to annual price increases from solution enhancements and expanded sales, while claims revenue grew from property estimating, anti-fraud, and international solutions[162][164] Note 15. Related Parties This note discloses any material transactions with related parties, ensuring transparency in financial reporting - No material transactions with related parties owning more than 5.0% of outstanding stock for the six months ended June 30, 2023 and 2022[102] Note 16. Commitments and Contingencies This note details the company's legal proceedings, commitments, and contingent liabilities, including litigation and regulatory inquiries - Involved in ERISA litigation regarding alleged excessive fees in the ISO 401(k) Plan; liability not estimable[103] - Ongoing civil inquiries by the DOJ and SEC related to government contracts in the former Financial Services segment; timing, outcome, and impact not estimable[104] - Facing multiple data privacy class action lawsuits alleging violations of privacy acts and failure to safeguard PII; liability not estimable for any cases[105][106][107][109] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and operational results, highlighting the strategic shift to the global insurance industry and key performance metrics Overview This overview introduces Verisk Analytics, Inc. as a strategic data analytics partner to the global insurance industry, highlighting its recent strategic shift - Verisk Analytics, Inc. is a leading strategic data analytics and technology partner to the global insurance industry[111] - The company completed the sale of its Energy business on February 1, 2023, which was classified as discontinued operations, marking a strategic shift[113] Executive Summary This executive summary highlights key performance metrics, revenue composition, and operating expense structure, providing a high-level financial snapshot - Key performance metrics include year-over-year revenue growth, EBITDA growth, and EBITDA margin[115] - Approximately 80% of insurance revenues for the six months ended June 30, 2023, were derived from hosted subscriptions, with the remainder from transactional and advisory/consulting solutions[119][120] - Personnel expenses constituted approximately 61% of total operating expenses (excluding dispositions) for the six months ended June 30, 2023[122] Condensed Consolidated Results of Operations This section presents a consolidated analysis of the company's financial performance, including revenues, operating income, and net income Consolidated Financial Highlights (Three Months Ended June 30) | Metric | 2023 (in millions) | 2022 (in millions) | Change (%) | | :----------------------------------- | :----------------- | :----------------- | :--------- | | Revenues | $675.0 | $612.8 | 10.1% | | Operating income | $306.0 | $247.6 | 23.6% | | Net income attributable to Verisk | $196.9 | $197.7 | (0.4)% | | EBITDA | $365.1 | $304.5 | 19.9% | | EBITDA Margin | 54.1% | 49.7% | 4.4 ppt | Consolidated Financial Highlights (Six Months Ended June 30) | Metric | 2023 (in millions) | 2022 (in millions) | Change (%) | | :----------------------------------- | :----------------- | :----------------- | :--------- | | Revenues | $1,326.6 | $1,256.4 | 5.6% | | Operating income | $600.1 | $870.4 | (31.1)% | | Net income attributable to Verisk | $253.2 | $703.4 | (64.0)% | | EBITDA | $720.4 | $986.7 | (27.0)% | | EBITDA Margin | 54.3% | 78.5% | (24.2) ppt | - The significant decrease in operating income and net income for the six months ended June 30, 2023, was largely due to the impact of prior year dispositions, which included net gains[128][156][157] Consolidated Results of Operations - Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022 This section compares the company's consolidated financial performance for the three months ended June 30, 2023, against the prior year - Total revenues increased by 10.1% to $675.0 million, with Insurance revenues (excluding acquisitions/dispositions) growing by 9.7%[132][133] - Cost of revenues increased by 10.9% to $216.9 million, driven by recent acquisitions and higher salaries and employee benefits[134] - Selling, general and administrative expenses decreased by 9.9% to $86.8 million, primarily due to dispositions and a decrease in acquisition-related earn-out costs[135] - Operating income increased by 23.6% to $306.0 million, and the net income margin from continuing operations improved to 30.3% from 28.3%[128][142] Consolidated Results of Operations - Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022 This section compares the company's consolidated financial performance for the six months ended June 30, 2023, against the prior year - Total revenues increased by 5.6% to $1,326.6 million, with Insurance revenues (excluding acquisitions/dispositions) growing by 9.4%[146][147] - Operating income decreased by 31.1% to $600.1 million, primarily due to the net gain from the sale of environmental health and safety and Financial Services segments in the prior year[128][152] - The effective tax rate increased to 25.4% from 17.9%, influenced by a prior year tax benefit from dispositions and tax charges related to the Energy sale in 2023[155] - Net income margin from continuing operations decreased to 30.1% from 52.6%, and EBITDA margin decreased to 54.3% from 78.5%, both primarily due to the impact of prior year dispositions[156][157] Results of Operations by Segment - Insurance This section analyzes the financial performance of the Insurance segment, including revenue growth drivers and EBITDA margin Insurance Segment Revenues (Six Months Ended June 30) | Category | 2023 (in millions) | 2022 (in millions) | Change (%) | | :-------------------------- | :----------------- | :----------------- | :--------- | | Underwriting | $938.6 | $853.8 | 9.9% | | Claims | $388.0 | $342.6 | 13.3% | | Total Insurance | $1,326.6 | $1,196.4 | 10.9% | - Insurance segment EBITDA increased by 13.8% to $720.4 million for the six months ended June 30, 2023, with an EBITDA margin of 54.3%[171] - Underwriting revenue growth was primarily due to annual price increases from solution enhancements and expanded sales, while claims revenue grew from property estimating, anti-fraud, and international solutions[162][164] Energy and Specialized Markets and Financial Segments This section addresses the disposition of the Energy, Specialized Markets, and Financial Services segments, noting their exclusion from current segment analysis - The Energy business was sold on February 1, 2023, and classified as discontinued operations[172] - The environmental health and safety business (Specialized Markets) and Financial Services segment were sold in March and April 2022, respectively, and did not qualify as discontinued operations[172][173] - These segments are excluded from management's discussion and analysis of results of operations by segment due to their dispositions[174] Liquidity and Capital Resources This section discusses the company's cash position, debt levels, share repurchases, dividends, and overall capital management strategies - Cash and cash equivalents were $311.2 million at June 30, 2023, up from $116.5 million at December 31, 2022[175] - The company used $2,500.0 million for share repurchases (funded by Energy business sale proceeds) and paid $98.7 million in dividends for the six months ended June 30, 2023[177] - Total debt decreased to $2,850.0 million at June 30, 2023, from $3,740.0 million at December 31, 2022[178] - The Syndicated Revolving Credit Facility's maturity was extended to April 5, 2028, with $995.5 million available capacity as of June 30, 2023[180][181] Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity | 2023 (in millions) | 2022 (in millions) | Change (%) | | :----------------------------------- | :----------------- | :----------------- | :--------- | | Net cash provided by operating activities | $558.2 | $529.8 | 5.4% | | Net cash provided by investing activities | $2,858.8 | $451.1 | 533.7% | | Net cash used in financing activities | $(3,401.8) | $(761.0) | 347.0% | Off-Balance Sheet Arrangements This section confirms the absence of any material off-balance sheet arrangements for the company - The company has no off-balance sheet arrangements[191] Contractual Obligations This section states that there have been no material changes to the company's contractual obligations since the last annual report - No material changes to contractual obligations since the 2022 10-K[192] Critical Accounting Estimates This section identifies key accounting estimates and policies, noting no material changes since the prior annual report - Key accounting estimates include acquisition purchase price allocations, revenue recognition, goodwill and intangible assets, pension benefits, stock-based compensation, income taxes, and allowance for doubtful accounts[193] - No material changes to critical accounting policies and estimates since the 2022 10-K[193] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there have been no material changes to the company's market risks since the last annual report - Market risks at June 30, 2023, have not materially changed from those discussed in the 2022 10-K[194] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2023. No material changes in internal control over financial reporting occurred during the quarter - Disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2023[196] - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2023[197] Part II This part provides additional information not covered in the financial statements, including legal proceedings, risk factors, equity sales, and other disclosures Item 1. Legal Proceedings The company is involved in various legal proceedings in the ordinary course of business, with details provided in Note 16 to the condensed consolidated financial statements - Refer to Note 16 for a description of significant current legal proceedings[199] Item 1A. Risk Factors There have been no material changes to the risk factors previously reported in the annual report on Form 10-K and the prior quarterly report on Form 10-Q - No material changes in risk factors since the 2022 10-K and Q1 2023 10-Q[200] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the period. The company had $941.3 million available for share repurchases as of June 30, 2023, but did not make any repurchases during the quarter - No unregistered sales of equity securities during the period[201] - $941.3 million was available for share repurchases as of June 30, 2023, but no repurchases were made during the quarter[202] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the period - No defaults upon senior securities[203] Item 4. Mine Safety Disclosures No mine safety disclosures are applicable to the company - No mine safety disclosures[204] Item 5. Other Information No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter ended June 30, 2023 - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements adopted or terminated by directors or officers during the quarter[205] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including amendments to credit agreements and required certifications - The exhibit index includes the Fifth Amendment to the Second Amended and Restated Credit Agreement and various certifications (CEO, CFO)[209] Signatures This section confirms the official signing of the report by the Chief Financial Officer on behalf of Verisk Analytics, Inc. Signatures The report was duly signed on behalf of Verisk Analytics, Inc. by Elizabeth D. Mann, Chief Financial Officer, on August 2, 2023 - The report was signed by Elizabeth D. Mann, Chief Financial Officer, on August 2, 2023[213]