Verisk(VRSK) - 2020 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Financial Statements This section presents Verisk Analytics, Inc.'s unaudited condensed consolidated financial statements as of June 30, 2020, covering balance sheets, statements of operations, comprehensive income, changes in stockholders' equity, and cash flows Condensed Consolidated Balance Sheets The balance sheet indicates a slight decrease in total assets to $7,007.9 million as of June 30, 2020, with total liabilities marginally increasing and stockholders' equity decreasing Condensed Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Assets | $7,007.9 | $7,055.2 | | Total Current Assets | $878.7 | $744.9 | | Goodwill | $3,744.1 | $3,864.3 | | Total Liabilities | $4,831.8 | $4,794.4 | | Total Current Liabilities | $1,490.3 | $1,491.8 | | Long-term debt | $2,690.7 | $2,651.6 | | Total Stockholders' Equity | $2,176.1 | $2,260.8 | Condensed Consolidated Statements of Operations For Q2 2020, revenues grew 4.0% to $678.8 million and net income increased 19.0% to $179.0 million, with similar growth trends observed for the six-month period Q2 2020 vs Q2 2019 Performance (in millions, except EPS) | Metric | Q2 2020 | Q2 2019 | YoY Change | | :--- | :--- | :--- | :--- | | Revenues | $678.8 | $652.6 | +4.0% | | Operating Income | $259.7 | $218.3 | +18.9% | | Net Income | $179.0 | $150.4 | +19.0% | | Diluted EPS | $1.08 | $0.90 | +20.0% | H1 2020 vs H1 2019 Performance (in millions, except EPS) | Metric | H1 2020 | H1 2019 | YoY Change | | :--- | :--- | :--- | :--- | | Revenues | $1,368.6 | $1,277.6 | +7.1% | | Operating Income | $512.0 | $420.7 | +21.7% | | Net Income | $350.7 | $284.8 | +23.2% | | Diluted EPS | $2.12 | $1.71 | +24.0% | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities increased to $612.1 million for the six months ended June 30, 2020, while both investing and financing activities saw decreased cash usage Six Months Ended June 30 Cash Flow Summary (in millions) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $612.1 | $566.4 | | Net cash used in investing activities | ($145.7) | ($168.1) | | Net cash used in financing activities | ($342.4) | ($386.2) | | Increase in cash and cash equivalents | $124.5 | $13.8 | Notes to Condensed Consolidated Financial Statements This section provides detailed disclosures on significant accounting policies and specific financial statement items, including revenue recognition, goodwill, debt, and segment reporting Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance for Q2 and H1 2020, covering consolidated and segment results, COVID-19 impact, liquidity, and capital resources, noting revenue growth and EBITDA margin expansion COVID-19 Impact The company adapted to a work-from-home model with minimal operational interruptions, with subscription revenues largely unaffected while transactional revenues declined due to pandemic impacts - Approximately 85% of revenues are subscription-based and not materially impacted by COVID-19, growing about 5% in Q2 2020[109] - The remaining 15% of revenues, largely transactional, declined by approximately 20% in Q2 2020 due to the pandemic's effects on specific sectors like travel, auto insurance, and energy[110] Consolidated Results of Operations Consolidated revenue increased 4.0% in Q2 and 7.1% in H1 2020, with net income and EBITDA also showing significant growth due to cost controls and disposition gains Consolidated Financial Highlights (in millions) | Metric | Q2 2020 | Q2 2019 | H1 2020 | H1 2019 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $678.8 | $652.6 | $1,368.6 | $1,277.6 | | Insurance | $486.4 | $471.0 | $975.8 | $924.5 | | Energy & Specialized Markets | $154.4 | $137.3 | $314.5 | $265.8 | | Financial Services | $38.0 | $44.3 | $78.3 | $87.3 | | Net Income | $179.0 | $150.4 | $350.7 | $284.8 | | EBITDA | $345.9 | $297.1 | $683.1 | $578.9 | - For H1 2020, the company recorded $19.4 million in 'Other operating income' from gains on the sale of its compliance background screening and data warehouse businesses[144] Results of Operations by Segment The Insurance and Energy & Specialized Markets segments reported revenue growth in Q2, while the Financial Services segment experienced a decline due to dispositions and the pandemic Q2 2020 Revenue Growth by Segment | Segment | Revenue (in millions) | YoY Growth | Growth ex. M&A | | :--- | :--- | :--- | :--- | | Insurance | $486.4 | 3.3% | 2.3% | | Energy & Specialized Markets | $154.4 | 12.4% | -4.1% | | Financial Services | $38.0 | -14.1% | -3.5% | H1 2020 EBITDA Margin by Segment | Segment | H1 2020 EBITDA Margin | H1 2019 EBITDA Margin | | :--- | :--- | :--- | | Insurance | 56.8% | 51.3% | | Energy & Specialized Markets | 32.6% | 29.2% | | Financial Services | 33.1% | 31.3% | Liquidity and Capital Resources The company maintained a strong liquidity position with $312.9 million in cash, issued $500.0 million in senior notes, and returned capital to shareholders through repurchases and dividends - Completed an issuance of $500.0 million in 3.625% senior notes due 2050, using the proceeds to repay the Credit Facility and for general corporate purposes[183] - Returned capital to shareholders through $248.8 million in share repurchases and $87.9 million in dividend payments during the first six months of 2020[181] - As of June 30, 2020, the company had $994.8 million available under its $1.0 billion Credit Facility and no outstanding borrowings[187] Quantitative and Qualitative Disclosures About Market Risk There have been no material changes to the company's market risks from those disclosed in its 2019 Annual Report on Form 10-K - Market risks as of June 30, 2020, have not materially changed from those reported in the 2019 Form 10-K[199] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of June 30, 2020, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that as of June 30, 2020, the company's disclosure controls and procedures were effective at a reasonable assurance level[202] - No changes occurred in the company's internal control over financial reporting during Q2 2020 that materially affected, or are reasonably likely to materially affect, these controls[203] PART II — OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings, most notably patent litigation with Eagle View Technologies, where a jury found willful infringement and assessed $125.0 million in damages, which the company plans to appeal - In the patent litigation with Eagle View Technologies, a jury found the company had willfully infringed patents and assessed damages of $125.0 million, for which a reserve has been established[100] - A permanent injunction was issued preventing sales of certain Geomni and Aerial Sketch products in combination with Xactimate, and the company plans to appeal the trial result and the injunction[100] Risk Factors A new risk factor addresses the potential adverse effects of the COVID-19 pandemic, including impacts on customer demand, increased costs, and overall financial condition - A new risk factor was added regarding the adverse effects of the COVID-19 outbreak[206] - Potential impacts include reduced customer demand due to lower activity in insurance and energy sectors, inability to perform on-site analyses, and reduced advertising spend by financial clients[206] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities and detailed its share repurchase activity for Q2 2020, totaling 491,529 shares for $75.0 million under an ASR agreement Issuer Purchases of Equity Securities (Q2 2020) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2020 | 430,477 | $139.38 | | May 2020 | — | — | | June 2020 | 61,052 | $152.59 (final average) | | Total | 491,529 | $152.59 | - As of June 30, 2020, the company had $378.8 million remaining under its share repurchase authorization[208] Other Information No other information was required to be disclosed under this item for the reporting period - There was no information to report under this item[210] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Interactive Data Files