Verisk Analytics, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Verisk provides data analytics and decision-support solutions, primarily to insurance and energy customers. It sold its environmental health and safety business in March and its Financial Services segment in April 2022; reported comparisons therefore reflect a changed business portfolio.
Financial results and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $745.3 million | $759.0 million | $2,267.1 million | $2,232.6 million |
| Operating income | $276.6 million | $288.9 million | $1,188.3 million | $806.7 million |
| Net income attributable to Verisk | $189.4 million | $201.7 million | $892.8 million | $524.3 million |
| Diluted EPS | $1.20 | $1.24 | $5.59 | $3.21 |
| Operating cash flow | $280.2 million | $285.2 million | $810.0 million | $967.1 million |
- Q3 performance: Revenue declined 1.8% year over year, but increased 3.2% excluding recent acquisitions and dispositions. Net income attributable to Verisk fell 6.1%; diluted EPS fell 3.2%. EBITDA, a non-GAAP measure, was $368.0 million versus $378.7 million, and EBITDA margin was 49.4% versus 49.9%. Net income margin was 25.4% versus 27.0%.
- Nine-month performance: Revenue rose 1.5% reported and 4.1% excluding acquisitions and dispositions. Net income attributable to Verisk increased 70.3%; diluted EPS rose 74.1%. EBITDA was $1,467.8 million versus $1,095.0 million, with margin of 64.7% versus 49.0%. These increases were materially boosted by gains on divestitures; the filing says the gains added 15.3 percentage points to consolidated EBITDA margin.
- Segment trends: Insurance revenue grew 9.4% in Q3 and 9.9% for nine months; excluding acquisitions, growth was 4.4% and 5.3%. Energy and Specialized Markets revenue fell 18.5% in Q3 and 12.7% for nine months, largely reflecting the environmental health and safety divestiture. Financial Services was sold in April.
- Cash flow and investment: Nine-month operating cash flow decreased 16.2%, mainly due to higher tax payments ($119.7 million increase) and the divestitures. Capital expenditures were $195.0 million for nine months. Investing cash flow was positive $383.2 million, including $1,073.3 million of sale proceeds, partly offset by acquisitions, capex, and investments.
- Liquidity and debt: Cash and cash equivalents were $276.8 million at September 30, 2022, versus $280.3 million at December 31, 2021. Total reported debt was $3,411.4 million, versus $3,314.1 million; debt excluding finance leases and related discounts/premiums/issuance costs was $3,415.0 million versus $3,310.0 million. The $1.0 billion revolving facility had $55.2 million available at quarter-end, net of letters of credit. After quarter-end repayments and added capacity, the company said it could draw up to $420.2 million. It reported compliance with debt covenants.
- Capital returns: Verisk repurchased $1,196.3 million of shares and paid $147.2 million in dividends during the first nine months. The quarterly declared dividend was $0.31 per share, compared with $0.29 a year earlier.
Material changes and unusual items
- Q3 included a $7.8 million loss from closing-adjustment true-ups for the two completed divestitures. The nine-month period included a $450.8 million gain on the environmental health and safety sale, a $73.7 million impairment and $15.6 million sale loss for Financial Services, and the Q3 true-up loss. The net of disposition-related items drove much of the nine-month earnings and margin increase.
- Verisk acquired Opta and Infutor in 2022 for net cash purchase prices of $217.5 million and $220.7 million, respectively. Acquisition purchase price allocations remained preliminary. It also increased its Whitespace ownership to 67%, with the remaining interest to be acquired over two years under specified terms.
- Foreign-currency translation reduced nine-month comprehensive income by $525.5 million; accumulated other comprehensive losses reached $916.1 million, primarily reflecting currency translation.
- Interest expense increased 15.4% in Q3, attributed principally to higher rates and borrowings on the revolving facility and the term loan, partly offset by maturity of senior notes.
Outlook, risks, and contingencies
- The filing provides no quantified earnings or revenue guidance. Management said it expected sufficient cash and credit availability for working capital, capital expenditures, and growth plans. It noted subscription revenues are generally prepaid and recurring; operating results for the first nine months are not necessarily indicative of full-year results.
- After quarter-end, the Board approved making the Energy business available for sale. On October 28, 2022, Verisk agreed to sell it to Veritas Capital for potential consideration of $3.3 billion: $3.1 billion cash at closing and up to $200 million in contingent consideration. Closing was expected in Q1 2023, subject to customary conditions and regulatory approvals.
- Management suspended commercial operations in Russia; the suspension reduced Energy and Specialized Markets revenue by approximately $6.8 million for the first nine months.
- The filing identifies legal and regulatory matters whose outcomes and potential losses cannot currently be estimated, including ERISA and privacy class actions and DOJ and SEC inquiries into government contracts of the former Financial Services business. Verisk agreed to indemnify TransUnion for certain losses related to the DOJ inquiry.
- One reporting unit had only a modest fair-value cushion over carrying value at the June 2022 goodwill test; adverse changes in projections or market conditions could result in a future material impairment. The company recorded a $73.7 million long-lived asset impairment related to Financial Services earlier in 2022.
- Management reported disclosure controls were effective at the reasonable-assurance level and no material change in internal control during the quarter. It reported no off-balance-sheet arrangements and no material change in contractual obligations outside the ordinary course.
Investor verification points
- Reconcile nine-month earnings and EBITDA growth to the divestiture gains, impairment, sale loss, and true-up items; assess earnings excluding these unusual items.
- Check ongoing Insurance organic growth and margins against acquisition-related costs and higher personnel, technology, and travel spending.
- Review the Energy sale agreement, closing conditions, contingent consideration terms, and use of proceeds, including implications for debt and share repurchases.
- Monitor credit-facility availability, floating-rate exposure, refinancing and debt maturities, and the effects of higher interest rates.
- Track the resolution of the DOJ/SEC inquiries and litigation, including any indemnity exposure, and assess potential goodwill impairment sensitivity.
- Assess cash conversion: nine-month operating cash flow fell despite higher reported net income, with taxes, divestitures, working capital, and prepaid subscription timing affecting comparisons.