Verisk Analytics, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; filed November 1, 2023. Verisk is a data analytics and technology provider to the global insurance industry. Following the February 2023 sale of its Energy business, Insurance is its sole reportable segment.
Financial performance
- Third-quarter revenue: $677.6 million, up 11.1% year over year. Underwriting revenue rose 8.9% and claims revenue rose 16.4%; acquisitions contributed $7.0 million. Excluding recent acquisitions and dispositions, revenue growth was 9.9%.
- Third-quarter profitability: Operating income was $281.1 million, up 10.8%; income from continuing operations was $187.4 million, up 13.1%. Diluted EPS from continuing operations was $1.29 versus $1.05. Net income margin from continuing operations was 27.7% versus 27.2%. EBITDA, a non-GAAP measure, was $346.8 million, up 11.0%, with a 51.2% margin, unchanged year over year.
- Nine-month revenue: $2,004.2 million, up 7.4% as reported and 9.6% excluding recent acquisitions and dispositions. Underwriting grew 9.6% and claims grew 14.3%.
- Nine-month profitability: Operating income was $881.2 million versus $1,124.0 million; income from continuing operations was $586.1 million versus $826.4 million. Diluted EPS from continuing operations was $3.96 versus $5.18. EBITDA was $1,067.2 million versus $1,299.2 million; its margin was 53.3% versus 69.6%. The prior-year comparison includes substantial gains from business disposals, which distort these declines; Insurance-segment EBITDA margin was 53.3% versus 53.2%.
- Cash flow: Operating cash flow was $250.1 million for Q3, down 10.7%, and $808.3 million for the first nine months, broadly flat year over year. Nine-month capital expenditures were $173.7 million. The filing does not present free cash flow as a defined measure.
- Liquidity and debt: September 30 cash and cash equivalents were $416.8 million; cash plus available-for-sale securities was $418.0 million. Current assets were $928.2 million and current liabilities $784.1 million. Total debt was $2,866.8 million, including finance leases; senior-note principal was $2.85 billion. The $1.0 billion revolving facility had $995.5 million available, and the company reported compliance with debt covenants.
- Capital returns: Nine-month share repurchases totaled $2,549.8 million in cash-flow reporting, including $500 million of unsettled repurchases; dividends paid were $147.9 million. The quarterly dividend declared was $0.34 per share, up from $0.31. $891.5 million remained authorized for repurchases at quarter end.
Material changes and unusual items
- Verisk completed the sale of its Energy business on February 1, 2023, receiving $3,066.4 million at closing and potential additional contingent consideration of up to $200 million. The sale generated a $128.4 million loss at closing and a further $6.9 million loss from closing adjustments; the 2022 held-for-sale remeasurement had also included a $303.7 million impairment.
- The Energy sale proceeds funded, among other uses, significant debt repayment and share repurchases. Nine-month investing cash flow was positive $2,803.5 million, primarily reflecting sale proceeds. Financing cash flow was negative $3,491.4 million, principally due to repurchases and debt repayments.
- Q3 selling, general and administrative expense included a $19.2 million litigation reserve expense associated with indemnification relating to a government inquiry into the former Financial Services business. The company separately reported a $20.0 million accrued liability for the DOJ inquiry; any eventual resolution could differ from that accrual.
- Q3 cost growth reflected personnel, data and rent costs; depreciation and amortization of fixed assets increased, partly due to data-capacity expansion. Q3 Insurance EBITDA margin was 51.2%, down from 53.6%, with the litigation reserve cited as a negative factor.
- The company issued $500 million of 5.75% senior notes due in 2033. Its bilateral term loan and revolving facilities matured in September and October 2023, respectively, and were not renewed; there had been no borrowings under them during 2023.
- Two acquisitions—Mavera and Krug—expanded European claims offerings. Their purchase-price allocations remained preliminary, including valuations of acquired intangibles and goodwill.
Outlook, risks and contingencies
- The filing provides no specific full-year 2023 revenue, earnings or cash-flow guidance. Management described recurring revenue growth and positive cash flow as key performance indicators, and expects cash from operations and its credit facility to support working capital, capital expenditures and growth plans. Results for the interim period are not necessarily indicative of full-year results.
- Management cited continued pricing and solution enhancements, expanded sales, and growth in claims offerings as drivers of Insurance revenue. It also noted that investment in new solutions and businesses may offset margin expansion.
- The company continued to cooperate with a DOJ civil inquiry concerning government contracts in its former Financial Services segment; discussions on potential resolution were ongoing, with no assurance of timing or outcome. An SEC inquiry concerning certain former-segment contracts also remained open, and any liability or consequences could not be reasonably estimated. Verisk has indemnification obligations to TransUnion for certain losses related to these inquiries.
- An ERISA class action was settled before a mediator on October 4, 2023, after quarter end; settlement terms were still being drafted. Several data-privacy class actions remained at early stages or subject to further proceedings, and the company said related liabilities could not be reasonably estimated. One such case was dismissed without prejudice; another was dismissed without prejudice with leave to amend.
- The company reported no material change in risk factors or market risks from its prior disclosures, no off-balance-sheet arrangements, effective disclosure controls, and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether underlying Insurance growth and margins continue, separating organic performance from acquisitions and the effect of the Q3 reserve.
- The status, potential financial exposure and indemnification consequences of the DOJ and SEC inquiries, and the final terms of the ERISA settlement.
- Use of Energy-sale proceeds, completion and settlement of the March 2023 accelerated share repurchase, and the balance of the repurchase authorization.
- Debt maturities, refinancing needs, covenant headroom and liquidity after the bilateral facilities expired.
- Final acquisition purchase-price allocations and whether any additional contingent consideration from the Energy sale is earned.
- The effect of divestiture-related gains and losses on comparisons, particularly nine-month earnings and EBITDA margins.