UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
September 30,OR
☐ | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
toCommission File Number: 001-34480
VERISK ANALYTICS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 26-2994223 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
545 Washington Boulevard | ||
Jersey City | ||
NJ | 07310-1686 | |
(Address of principal executive offices) | (Zip Code) |
(201) 469-3000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange where registered |
Common Stock $.001 par value | VRSK | NASDAQ Global Select Market |
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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, or a smaller reporting 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 Exchange Act). Yes ☐ No ☒
As of October 27, 2017,30, 2020, there were 164,691,912162,589,797 shares outstanding of the registrant's Common Stock, par value $.001.
Index to Form 10-Q
Table of Contents
Page Number | ||
PART I — FINANCIAL INFORMATION | ||
| 34 | ||
| 34 | ||
| 35 | ||
Exhibit 31.1 | ||
Exhibit 31.2 | ||
Exhibit 32.1 | ||
PART I — FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
As of
September 30,2020 | 2019 | |||||||
(in millions, except for share and per share data) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
| Cash and cash equivalents | $ | 221.8 | $ | 184.6 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $16.1 and $11.7, respectively | 433.4 | 441.6 | ||||||
| Prepaid expenses | 82.3 | 60.9 | ||||||
| Income taxes receivable | 26.0 | 25.9 | ||||||
| Other current assets | 36.2 | 17.8 | ||||||
| Current assets held for sale | 0 | 14.1 | ||||||
Total current assets | 799.7 | 744.9 | ||||||
Noncurrent assets: | ||||||||
| Fixed assets, net | 606.4 | 548.1 | ||||||
| Operating lease right-of-use assets, net | 237.8 | 218.6 | ||||||
| Intangible assets, net | 1,316.3 | 1,398.9 | ||||||
| Goodwill | 3,924.9 | 3,864.3 | ||||||
| Deferred income tax assets | 9.5 | 9.8 | ||||||
| Other noncurrent assets | 325.0 | 159.8 | ||||||
| Noncurrent assets held for sale | 0 | 110.8 | ||||||
Total assets | $ | 7,219.6 | $ | 7,055.2 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | 369.3 | $ | 375.0 | ||||
| Acquisition-related liabilities | 12.7 | 111.2 | ||||||
| Short-term debt and current portion of long-term debt | 460.4 | 499.4 | ||||||
| Deferred revenues | 531.7 | 440.1 | ||||||
| Operating lease liabilities | 39.2 | 40.6 | ||||||
| Income taxes payable | 9.6 | 6.8 | ||||||
| Current liabilities held for sale | 0 | 18.7 | ||||||
Total current liabilities | 1,422.9 | 1,491.8 | ||||||
Noncurrent liabilities: | ||||||||
| Long-term debt | 2,698.9 | 2,651.6 | ||||||
| Deferred income tax liabilities | 369.2 | 356.0 | ||||||
| Operating lease liabilities | 240.2 | 208.1 | ||||||
| Other liabilities | 67.1 | 48.8 | ||||||
| Noncurrent liabilities held for sale | 0 | 38.1 | ||||||
Total liabilities | 4,798.3 | 4,794.4 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
| Common stock, $.001 par value; 2,000,000,000 shares authorized; 544,003,038 shares issued; 162,751,449 and 163,161,564 shares outstanding, respectively | 0.1 | 0.1 | ||||||
| Additional paid-in capital | 2,464.6 | 2,369.1 | ||||||
| Treasury stock, at cost, 381,251,589 and 380,841,474 shares, respectively | (4,132.9 | ) | (3,849.9 | ) | ||||
| Retained earnings | 4,630.4 | 4,228.4 | ||||||
| Accumulated other comprehensive losses | (540.9 | ) | (486.9 | ) | ||||
Total stockholders’ equity | 2,421.3 | 2,260.8 | ||||||
Total liabilities and stockholders’ equity | $ | 7,219.6 | $ | 7,055.2 | ||||
| 2017 | 2016 | ||||||
(In millions, except for share and per share data) | |||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 142.0 | $ | 135.1 | |||
| Available-for-sale securities | 3.7 | 3.4 | |||||
| Accounts receivable, net of allowance for doubtful accounts of $4.7 and $3.4, respectively | 285.8 | 263.9 | |||||
| Prepaid expenses | 42.4 | 28.9 | |||||
| Income taxes receivable | 34.3 | 49.3 | |||||
| Other current assets | 36.5 | 20.3 | |||||
| Total current assets | 544.7 | 500.9 | |||||
| Noncurrent assets: | |||||||
| Fixed assets, net | 437.8 | 380.3 | |||||
| Intangible assets, net | 1,256.2 | 1,010.8 | |||||
| Goodwill | 3,188.8 | 2,578.1 | |||||
| Deferred income tax assets | 16.9 | 15.6 | |||||
| Other assets | 183.8 | 145.5 | |||||
| Total assets | $ | 5,628.2 | $ | 4,631.2 | |||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
| Current liabilities: | |||||||
| Accounts payable and accrued liabilities | $ | 210.2 | $ | 184.0 | |||
| Short-term debt and current portion of long-term debt | 602.9 | 106.8 | |||||
| Deferred revenues | 390.0 | 330.8 | |||||
| Total current liabilities | 1,203.1 | 621.6 | |||||
| Noncurrent liabilities: | |||||||
| Long-term debt | 2,278.8 | 2,280.2 | |||||
| Deferred income taxes, net | 384.1 | 322.2 | |||||
| Other liabilities | 89.6 | 74.8 | |||||
| Total liabilities | 3,955.6 | 3,298.8 | |||||
| Commitments and contingencies | |||||||
| Stockholders’ equity: | |||||||
| Common stock, $.001 par value; 2,000,000,000 shares authorized; 544,003,038 shares issued and 164,516,754 and 166,915,772 shares outstanding, respectively | 0.1 | 0.1 | |||||
| Additional paid-in capital | 2,165.8 | 2,121.6 | |||||
| Treasury stock, at cost, 379,486,284 and 377,087,266 shares, respectively | (3,153.4 | ) | (2,891.4 | ) | |||
| Retained earnings | 3,103.4 | 2,752.9 | |||||
| Accumulated other comprehensive losses | (443.3 | ) | (650.8 | ) | |||
| Total stockholders’ equity | 1,672.6 | 1,332.4 | |||||
| Total liabilities and stockholders’ equity | $ | 5,628.2 | $ | 4,631.2 | |||
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(in millions, except for share and per share data) | ||||||||||||||||
| Revenues | $ | 702.7 | $ | 652.7 | $ | 2,071.2 | $ | 1,930.3 | ||||||||
Operating expenses: | ||||||||||||||||
| Cost of revenues (exclusive of items shown separately below) | 240.0 | 242.9 | 733.4 | 717.0 | ||||||||||||
| Selling, general and administrative | 96.4 | 255.0 | 304.8 | 478.7 | ||||||||||||
| Depreciation and amortization of fixed assets | 49.4 | 45.8 | 141.3 | 138.0 | ||||||||||||
| Amortization of intangible assets | 41.5 | 33.3 | 123.6 | 100.1 | ||||||||||||
| Other operating loss (income) | 0 | 6.2 | (19.4 | ) | 6.2 | |||||||||||
Total operating expenses | 427.3 | 583.2 | 1,283.7 | 1,440.0 | ||||||||||||
Operating income | 275.4 | 69.5 | 787.5 | 490.3 | ||||||||||||
Other income (expense): | ||||||||||||||||
| Investment (loss) income and others, net | (0.1 | ) | 0.7 | (3.1 | ) | (0.3 | ) | |||||||||
| Interest expense | (35.3 | ) | (31.3 | ) | (102.9 | ) | (93.7 | ) | ||||||||
Total other expense, net | (35.4 | ) | (30.6 | ) | (106.0 | ) | (94.0 | ) | ||||||||
Income before income taxes | 240.0 | 38.9 | 681.5 | 396.3 | ||||||||||||
| Provision for income taxes | (54.2 | ) | (6.0 | ) | (145.0 | ) | (78.6 | ) | ||||||||
Net income | $ | 185.8 | $ | 32.9 | $ | 536.5 | $ | 317.7 | ||||||||
| Basic net income per share | $ | 1.14 | $ | 0.20 | $ | 3.30 | $ | 1.94 | ||||||||
| Diluted net income per share | $ | 1.12 | $ | 0.20 | $ | 3.24 | $ | 1.91 | ||||||||
Weighted-average shares outstanding: | ||||||||||||||||
| Basic | 162,502,191 | 163,580,563 | 162,589,473 | 163,617,580 | ||||||||||||
| Diluted | 165,731,226 | 166,779,618 | 165,519,899 | 166,673,946 | ||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| (In millions, except for share and per share data) | |||||||||||||||
| Revenues | $ | 549.1 | $ | 498.1 | $ | 1,574.9 | $ | 1,489.1 | |||||||
| Expenses: | |||||||||||||||
| Cost of revenues (exclusive of items shown separately below) | 198.5 | 169.7 | 575.1 | 521.4 | |||||||||||
| Selling, general and administrative | 80.9 | 77.8 | 235.6 | 224.4 | |||||||||||
| Depreciation and amortization of fixed assets | 33.8 | 29.5 | 99.4 | 90.7 | |||||||||||
| Amortization of intangible assets | 27.5 | 22.7 | 73.6 | 70.4 | |||||||||||
| Total expenses | 340.7 | 299.7 | 983.7 | 906.9 | |||||||||||
| Operating income | 208.4 | 198.4 | 591.2 | 582.2 | |||||||||||
| Other income (expense): | |||||||||||||||
| Investment income and others, net | 2.6 | 2.1 | 7.9 | 3.0 | |||||||||||
| Interest expense | (30.3 | ) | (28.1 | ) | (87.3 | ) | (91.7 | ) | |||||||
| Total other expense, net | (27.7 | ) | (26.0 | ) | (79.4 | ) | (88.7 | ) | |||||||
| Income from continuing operations before income taxes | 180.7 | 172.4 | 511.8 | 493.5 | |||||||||||
| Provision for income taxes | (60.0 | ) | (44.8 | ) | (161.3 | ) | (149.5 | ) | |||||||
| Income from continuing operations | 120.7 | 127.6 | 350.5 | 344.0 | |||||||||||
| Discontinued operations: | |||||||||||||||
| Income from discontinued operations | — | — | — | 256.5 | |||||||||||
| Provision for income taxes from discontinued operations | — | — | — | (118.6 | ) | ||||||||||
| Income from discontinued operations | — | — | — | 137.9 | |||||||||||
| Net income | $ | 120.7 | $ | 127.6 | $ | 350.5 | $ | 481.9 | |||||||
| Basic net income per share: | |||||||||||||||
| Income from continuing operations | $ | 0.73 | $ | 0.76 | $ | 2.12 | $ | 2.04 | |||||||
| Income from discontinued operations | — | — | — | 0.82 | |||||||||||
| Basic net income per share | $ | 0.73 | $ | 0.76 | $ | 2.12 | $ | 2.86 | |||||||
| Diluted net income per share: | |||||||||||||||
| Income from continuing operations | $ | 0.72 | $ | 0.74 | $ | 2.08 | $ | 2.01 | |||||||
| Income from discontinued operations | — | — | — | 0.80 | |||||||||||
| Diluted net income per share | $ | 0.72 | $ | 0.74 | $ | 2.08 | $ | 2.81 | |||||||
| Weighted average shares outstanding: | |||||||||||||||
| Basic | 164,577,575 | 168,874,129 | 165,314,267 | 168,541,399 | |||||||||||
| Diluted | 167,957,058 | 171,785,900 | 168,807,405 | 171,495,189 | |||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(in millions) | ||||||||||||||||
Net income | $ | 185.8 | $ | 32.9 | $ | 536.5 | $ | 317.7 | ||||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||
| Foreign currency translation adjustment | 115.0 | (87.3 | ) | (57.7 | ) | (89.7 | ) | |||||||||
| Pension and postretirement liability adjustment | 1.3 | 1.1 | 3.7 | 3.2 | ||||||||||||
Total other comprehensive income (loss) | 116.3 | (86.2 | ) | (54.0 | ) | (86.5 | ) | |||||||||
Comprehensive income (loss) | $ | 302.1 | $ | (53.3 | ) | $ | 482.5 | $ | 231.2 | |||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| (In millions) | |||||||||||||||
| Net income | $ | 120.7 | $ | 127.6 | $ | 350.5 | $ | 481.9 | |||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||
| Foreign currency translation adjustment | 82.2 | (62.1 | ) | 204.9 | (278.6 | ) | |||||||||
| Unrealized holding gain on available-for-sale securities | — | 0.1 | 0.2 | 0.3 | |||||||||||
| Pension and postretirement liability adjustment | 0.9 | 0.2 | 2.4 | 1.4 | |||||||||||
| Total other comprehensive income (loss) | 83.1 | (61.8 | ) | 207.5 | (276.9 | ) | |||||||||
| Comprehensive income | $ | 203.8 | $ | 65.8 | $ | 558.0 | $ | 205.0 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
For The Year Ended
Common Stock Issued | Par Value | Additional Paid-in Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Losses | Total Stockholders’ Equity | ||||||||||||||||||||||
(in millions, except for share data) | ||||||||||||||||||||||||||||
Balance, July 1, 2020 | 544,003,038 | $ | 0.1 | $ | 2,432.8 | $ | (4,088.4 | ) | $ | 4,488.8 | $ | (657.2 | ) | $ | 2,176.1 | |||||||||||||
Net income | — | 0 | 0 | 0 | 185.8 | 0 | 185.8 | |||||||||||||||||||||
Common stock dividend (1) | — | 0 | 0 | 0 | (44.2 | ) | 0 | (44.2 | ) | |||||||||||||||||||
Other comprehensive income | — | 0 | 0 | 0 | 0 | 116.3 | 116.3 | |||||||||||||||||||||
Treasury stock acquired (276,290 shares) | — | 0 | 0 | (50.0 | ) | 0 | 0 | (50.0 | ) | |||||||||||||||||||
Stock options exercised (492,135 shares transferred from treasury stock) | — | 0 | 20.7 | 5.3 | 0 | 0 | 26.0 | |||||||||||||||||||||
Restricted stock lapsed (1,721 shares transferred from treasury stock) | — | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
Stock-based compensation expense | — | 0 | 10.0 | 0 | 0 | 0 | 10.0 | |||||||||||||||||||||
| Net share settlement from restricted stock awards (288 shares withheld for tax settlement) | — | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
| Other stock issuances (13,637 shares transferred from treasury stock) | — | 0 | 1.1 | 0.2 | 0 | 0 | 1.3 | |||||||||||||||||||||
| Balance, September 30, 2020 | 544,003,038 | $ | 0.1 | $ | 2,464.6 | $ | (4,132.9 | ) | $ | 4,630.4 | $ | (540.9 | ) | $ | 2,421.3 | |||||||||||||
Balance, July 1, 2019 | 544,003,038 | $ | 0.1 | $ | 2,336.9 | $ | (3,679.4 | ) | $ | 4,145.3 | $ | (592.2 | ) | $ | 2,210.7 | |||||||||||||
Net income | — | 0 | 0 | 0 | 32.9 | 0 | 32.9 | |||||||||||||||||||||
Common stock dividend (1) | — | 0 | 0 | 0 | (41.6 | ) | 0 | (41.6 | ) | |||||||||||||||||||
Other comprehensive loss | — | 0 | 0 | 0 | 0 | (86.2 | ) | (86.2 | ) | |||||||||||||||||||
Treasury stock acquired (490,716 shares) | — | 0 | 0 | (75.0 | ) | 0 | 0 | (75.0 | ) | |||||||||||||||||||
Stock options exercised (252,172 shares transferred from treasury stock) | — | 0 | 10.6 | 2.4 | 0 | 0 | 13.0 | |||||||||||||||||||||
Restricted stock lapsed (1,636 shares transferred from treasury stock) | — | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
Stock-based compensation expense | — | 0 | 8.8 | 0 | 0 | 0 | 8.8 | |||||||||||||||||||||
| Net share settlement from restricted stock awards (240 shares withheld for tax settlement) | — | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
Other stock issuances (13,657 shares transferred from treasury stock) | — | 0 | 1.0 | 0.1 | 0 | 0 | 1.1 | |||||||||||||||||||||
Balance, September 30, 2019 | 544,003,038 | $ | 0.1 | $ | 2,357.3 | $ | (3,751.9 | ) | $ | 4,136.6 | $ | (678.4 | ) | $ | 2,063.7 | |||||||||||||
Common Stock Issued | Par Value | Additional Paid-in Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Losses | Total Stockholders’ Equity | ||||||||||||||||||||
| (In millions, except for share data) | ||||||||||||||||||||||||||
| Balance, January 1, 2016 | 544,003,038 | $ | 0.1 | $ | 2,023.4 | $ | (2,571.2 | ) | $ | 2,161.7 | $ | (242.0 | ) | $ | 1,372.0 | |||||||||||
| Net income | — | — | — | — | 591.2 | — | 591.2 | |||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | (408.8 | ) | (408.8 | ) | |||||||||||||||||
| Treasury stock acquired (4,325,548 shares) | — | — | — | (333.3 | ) | — | — | (333.3 | ) | |||||||||||||||||
| KSOP shares earned (181,198 shares reissued from treasury stock) | — | — | 13.2 | 1.3 | — | — | 14.5 | |||||||||||||||||||
| Stock options exercised, including tax benefit of $22.1 (1,409,803 shares reissued from treasury stock) | — | — | 56.2 | 10.2 | — | — | 66.4 | |||||||||||||||||||
| Restricted stock lapsed, including tax benefit of $1.2 (169,365 shares reissued from treasury stock) | — | — | — | 1.2 | — | — | 1.2 | |||||||||||||||||||
| Employee stock purchase plan (29,867 shares reissued from treasury stock) | — | — | 2.1 | 0.2 | — | — | 2.3 | |||||||||||||||||||
| Stock based compensation | — | — | 29.9 | — | — | — | 29.9 | |||||||||||||||||||
| Net share settlement from restricted stock awards (38,250 shares withheld for tax settlement) | — | — | (3.1 | ) | — | — | — | (3.1 | ) | |||||||||||||||||
| Other stock issuances (26,106 shares reissued from treasury stock) | — | — | (0.1 | ) | 0.2 | — | — | 0.1 | ||||||||||||||||||
| Balance, December 31, 2016 | 544,003,038 | 0.1 | 2,121.6 | (2,891.4 | ) | 2,752.9 | (650.8 | ) | 1,332.4 | |||||||||||||||||
| Net income | — | — | — | — | 350.5 | — | 350.5 | |||||||||||||||||||
| Other comprehensive gain | — | — | — | — | — | 207.5 | 207.5 | |||||||||||||||||||
| Treasury stock acquired (3,356,360 shares) | — | — | — | (269.8 | ) | — | — | (269.8 | ) | |||||||||||||||||
| Stock options exercised (773,206 shares reissued from treasury stock) | — | — | 22.5 | 6.3 | — | — | 28.8 | |||||||||||||||||||
| Restricted stock lapse (141,961 shares reissued from treasury stock) | — | — | (1.1 | ) | 1.1 | — | — | — | ||||||||||||||||||
| Employee stock purchase plan (23,391 shares reissued from treasury stock) | — | — | 1.7 | 0.2 | — | — | 1.9 | |||||||||||||||||||
| Stock based compensation | — | — | 24.2 | — | — | — | 24.2 | |||||||||||||||||||
| Net share settlement of restricted stock awards (36,067 shares withheld for tax settlement) | — | — | (2.9 | ) | — | — | — | (2.9 | ) | |||||||||||||||||
| Other stock issuances (18,784 shares reissued from treasury stock) | — | — | (0.2 | ) | 0.2 | — | — | — | ||||||||||||||||||
| Balance, September 30, 2017 | 544,003,038 | $ | 0.1 | $ | 2,165.8 | $ | (3,153.4 | ) | $ | 3,103.4 | $ | (443.3 | ) | $ | 1,672.6 | |||||||||||
_______________
(1) Refer to Note 11. Stockholders' Equity for discussion related to quarterly cash dividends declared per share
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSCHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
For The Nine Months Ended September 30, 20172020 and 2016
Common Stock Issued | Par Value | Additional Paid-in Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Losses | Total Stockholders’ Equity | ||||||||||||||||||||||
(in millions, except for share data) | ||||||||||||||||||||||||||||
Balance, January 1, 2020 | 544,003,038 | $ | 0.1 | $ | 2,369.1 | $ | (3,849.9 | ) | $ | 4,228.4 | $ | (486.9 | ) | $ | 2,260.8 | |||||||||||||
| Adjustment to opening retained earnings related to Topic 326 | — | 0 | 0 | 0 | (2.4 | ) | 0 | (2.4 | ) | |||||||||||||||||||
Net income | — | 0 | 0 | 0 | 536.5 | 0 | 536.5 | |||||||||||||||||||||
| Common stock dividend (1) | — | 0 | 0 | 0 | (132.1 | ) | 0 | (132.1 | ) | |||||||||||||||||||
Other comprehensive loss | — | 0 | 0 | 0 | 0 | (54.0 | ) | (54.0 | ) | |||||||||||||||||||
| Treasury stock acquired (1,892,187 shares) | — | 0 | 0 | (298.8 | ) | 0 | — | (298.8 | ) | |||||||||||||||||||
| Stock options exercised (1,308,469 shares transferred from treasury stock) | — | 0 | 57.9 | 13.9 | 0 | 0 | 71.8 | |||||||||||||||||||||
| Restricted stock lapsed (137,811 shares transferred from treasury stock) | — | 0 | (1.5 | ) | 1.5 | 0 | 0 | 0 | ||||||||||||||||||||
| Stock based compensation | — | 0 | 39.1 | 0 | 0 | 0 | 39.1 | |||||||||||||||||||||
| Net share settlement from restricted stock awards (25,187 shares withheld for tax settlement) | — | 0 | (3.5 | ) | 0 | 0 | 0 | (3.5 | ) | |||||||||||||||||||
| Other stock issuances (35,792 shares transferred from treasury stock) | — | 0 | 3.5 | 0.4 | 0 | 0 | 3.9 | |||||||||||||||||||||
Balance, September 30, 2020 | 544,003,038 | $ | 0.1 | $ | 2,464.6 | $ | (4,132.9 | ) | $ | 4,630.4 | $ | (540.9 | ) | $ | 2,421.3 | |||||||||||||
Balance, January 1, 2019 | 544,003,038 | $ | 0.1 | $ | 2,283.0 | $ | (3,563.2 | ) | $ | 3,942.6 | $ | (591.9 | ) | $ | 2,070.6 | |||||||||||||
Net income | — | 0 | 0 | 0 | 317.7 | 0 | 317.7 | |||||||||||||||||||||
Common stock dividend (1) | — | 0 | 0 | 0 | (123.7 | ) | 0 | (123.7 | ) | |||||||||||||||||||
Other comprehensive loss | — | 0 | 0 | 0 | 0 | (86.5 | ) | (86.5 | ) | |||||||||||||||||||
Treasury stock acquired (1,488,779 shares) | — | 0 | 0 | (200.0 | ) | 0 | 0 | (200.0 | ) | |||||||||||||||||||
Stock options exercised (970,348 shares transferred from treasury stock) | — | 0 | 41.8 | 9.3 | 0 | 0 | 51.1 | |||||||||||||||||||||
Restricted stock lapsed (163,989 shares transferred from treasury stock) | — | 0 | (1.6 | ) | 1.6 | 0 | 0 | 0 | ||||||||||||||||||||
Stock based compensation | — | 0 | 36.4 | 0 | 0 | 0 | 36.4 | |||||||||||||||||||||
Net share settlement from restricted stock awards (37,875 shares withheld for tax settlement) | — | 0 | (5.1 | ) | 0 | 0 | 0 | (5.1 | ) | |||||||||||||||||||
Other stock issuances (35,562 shares transferred from treasury stock) | — | 0 | 2.8 | 0.4 | 0 | 0 | 3.2 | |||||||||||||||||||||
Balance, September 30, 2019 | 544,003,038 | $ | 0.1 | $ | 2,357.3 | $ | (3,751.9 | ) | $ | 4,136.6 | $ | (678.4 | ) | $ | 2,063.7 | |||||||||||||
| 2017 | 2016 | ||||||
| (In millions) | |||||||
| Cash flows from operating activities: | |||||||
| Net income | $ | 350.5 | $ | 481.9 | |||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
| Depreciation and amortization of fixed assets | 99.4 | 97.7 | |||||
| Amortization of intangible assets | 73.6 | 76.3 | |||||
| Amortization of debt issuance costs and original issue discount | 3.1 | 4.0 | |||||
| Allowance for doubtful accounts | 1.4 | 1.5 | |||||
| KSOP stock based compensation expense | — | 11.4 | |||||
| Stock based compensation | 24.2 | 23.8 | |||||
| Gain on sale of discontinued operations | — | (269.4 | ) | ||||
| Realized (gain) loss on available-for-sale securities, net | (0.1 | ) | 0.3 | ||||
| Gain on exercise of common stock warrants | — | (1.5 | ) | ||||
| Deferred income taxes | (4.1 | ) | (1.7 | ) | |||
| Loss on disposal of fixed assets, net | — | 0.9 | |||||
| Changes in assets and liabilities, net of effects from acquisitions: | |||||||
| Accounts receivable | 4.0 | 32.6 | |||||
| Prepaid expenses and other assets | (26.4 | ) | (22.4 | ) | |||
| Income taxes | 14.1 | 45.3 | |||||
| Accounts payable and accrued liabilities | 21.7 | (7.2 | ) | ||||
| Deferred revenues | 47.2 | 14.7 | |||||
| Other liabilities | (16.5 | ) | (3.8 | ) | |||
| Net cash provided by operating activities | 592.1 | 484.4 | |||||
| Cash flows from investing activities: | |||||||
| Acquisitions, net of cash acquired of $22.1 and $1.0, respectively | (674.3 | ) | (45.2 | ) | |||
| Purchase of equity method investments in non-public companies | (5.0 | ) | — | ||||
| Sale of non-controlling equity investments in non-public companies | — | 8.5 | |||||
| Proceeds from sale of discontinued operations | — | 719.4 | |||||
| Escrow funding associated with acquisitions | (30.9 | ) | (4.4 | ) | |||
| Capital expenditures | (113.8 | ) | (98.6 | ) | |||
| Purchases of available-for-sale securities | (0.3 | ) | (0.2 | ) | |||
| Proceeds from sales and maturities of available-for-sale securities | 0.4 | 0.4 | |||||
| Other investing activities, net | — | (0.6 | ) | ||||
| Net cash (used in) provided by investing activities | (823.9 | ) | 579.3 | ||||
| Cash flows from financing activities: | |||||||
| Proceeds (repayment) of short-term debt, net | 40.0 | (870.0 | ) | ||||
| Proceeds from issuance of short-term debt with original maturities greater than three months | 455.0 | — | |||||
| Repurchases of common stock | (276.2 | ) | (182.5 | ) | |||
| Payment of debt issuance costs | (0.5 | ) | (0.5 | ) | |||
| Net share settlement of restricted stock awards | (2.9 | ) | (3.1 | ) | |||
| Proceeds from stock options exercised | 26.0 | 32.6 | |||||
| Other financing activities, net | (7.1 | ) | (4.4 | ) | |||
| Net cash provided by (used in) financing activities | 234.3 | (1,027.9 | ) | ||||
| Effect of exchange rate changes | 4.4 | (9.4 | ) | ||||
| Increase in cash and cash equivalents | 6.9 | 26.4 | |||||
| Cash and cash equivalents, beginning of period | 135.1 | 138.3 | |||||
| Cash and cash equivalents, end of period | $ | 142.0 | $ | 164.7 | |||
| Supplemental disclosures: | |||||||
| Income taxes paid | $ | 150.6 | $ | 221.4 | |||
| Interest paid | $ | 68.8 | $ | 75.8 | |||
| Noncash investing and financing activities: | |||||||
| Repurchases of common stock included in accounts payable and accrued liabilities | $ | — | $ | 7.3 | |||
| Promissory note received for sale of discontinued operations | $ | — | $ | 82.9 | |||
| Equity interest received for sale of discontinued operations | $ | — | $ | 8.4 | |||
| Deferred tax liability established on date of acquisition | $ | 53.2 | $ | 3.8 | |||
| Tenant improvement included in other liabilities | $ | — | $ | 0.1 | |||
| Capital lease obligations | $ | 4.2 | $ | 11.5 | |||
| Capital expenditures included in accounts payable and accrued liabilities | $ | 1.3 | $ | 2.3 | |||
_______________
(1) Refer to Note 11. Stockholders' Equity for discussion related to quarterly cash dividends declared per share
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For The Nine Months Ended September 30, 2020 and 2019
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(in millions) | ||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income | $ | 185.8 | $ | 32.9 | $ | 536.5 | $ | 317.7 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization of fixed assets | 49.4 | 45.8 | 141.3 | 138.0 | ||||||||||||
Amortization of intangible assets | 41.5 | 33.3 | 123.6 | 100.1 | ||||||||||||
| Amortization of debt issuance costs and original issue discount, net of original issue premium | 0.5 | 1.6 | 1.3 | 3.5 | ||||||||||||
| Provision for doubtful accounts | 1.4 | 1.8 | 6.8 | 5.1 | ||||||||||||
| Loss (gain) on sale of assets | 0 | 6.2 | (19.4 | ) | 6.2 | |||||||||||
| Stock-based compensation | 10.0 | 8.8 | 39.1 | 36.4 | ||||||||||||
| Realized gain on available-for-sale securities, net | 0 | (0.1 | ) | 0 | (0.7 | ) | ||||||||||
| Deferred income taxes | 12.4 | (27.4 | ) | 10.9 | (27.4 | ) | ||||||||||
| Loss on disposal of fixed assets, net | 0.1 | 0 | 0.5 | 0 | ||||||||||||
Changes in assets and liabilities, net of effects from acquisitions: | ||||||||||||||||
| Accounts receivable | 26.8 | 35.2 | (3.6 | ) | (54.5 | ) | ||||||||||
| Prepaid expenses and other assets | (8.3 | ) | (9.2 | ) | (62.1 | ) | (19.9 | ) | ||||||||
| Operating lease right-of-use assets, net | 9.3 | 9.9 | 28.6 | 28.5 | ||||||||||||
| Income taxes | (63.3 | ) | 2.7 | 3.3 | 13.9 | |||||||||||
| Acquisition-related liabilities | (0.1 | ) | 44.9 | (63.4 | ) | 40.5 | ||||||||||
| Accounts payable and accrued liabilities | 39.3 | 138.7 | (12.1 | ) | 152.7 | |||||||||||
| Deferred revenues | (90.5 | ) | (95.3 | ) | 94.3 | 71.5 | ||||||||||
| Operating lease liabilities | (8.7 | ) | (8.7 | ) | (16.6 | ) | (27.2 | ) | ||||||||
| Other liabilities | 1.5 | (7.5 | ) | 10.2 | (4.5 | ) | ||||||||||
Net cash provided by operating activities | 207.1 | 213.6 | 819.2 | 779.9 | ||||||||||||
Cash flows from investing activities: | ||||||||||||||||
| Acquisitions, net of cash acquired of $5.2 and $3.1 and $5.2 and $6.8, respectively | (151.9 | ) | (40.4 | ) | (151.9 | ) | (109.5 | ) | ||||||||
| Escrow funding associated with acquisitions | (8.0 | ) | (4.5 | ) | (8.0 | ) | (4.5 | ) | ||||||||
| Proceeds from sale of assets | 0 | 0 | 23.1 | 0 | ||||||||||||
| Purchase of investments in a nonpublic company | 0 | 0 | (63.8 | ) | 0 | |||||||||||
| Capital expenditures | (64.8 | ) | (60.7 | ) | (174.4 | ) | (152.8 | ) | ||||||||
| Other investing activities, net | 5.7 | (0.8 | ) | 10.3 | (7.7 | ) | ||||||||||
Net cash used in investing activities | (219.0 | ) | (106.4 | ) | (364.7 | ) | (274.5 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||||||
| Repayments of short-term debt, net | 0 | (60.0 | ) | (495.0 | ) | (405.0 | ) | |||||||||
| Proceeds from issuance of short-term debt with original maturities greater than three months | 0 | 0 | 20.0 | 0 | ||||||||||||
| Repayments of short-term debt with original maturities greater than three months | 0 | 0 | (20.0 | ) | 0 | |||||||||||
| Repayments of current portion of long-term debt | 0 | 0 | 0 | (250.0 | ) | |||||||||||
| Proceeds from issuance of long-term debt, inclusive of original issue premium and net of original issue discount | 0 | 221.8 | 494.8 | 619.7 | ||||||||||||
| Payment of debt issuance costs | (0.1 | ) | (1.2 | ) | (5.7 | ) | (5.3 | ) | ||||||||
| Repurchases of common stock | (50.0 | ) | (75.0 | ) | (298.8 | ) | (200.0 | ) | ||||||||
| Proceeds from stock options exercised | 26.0 | 13.5 | 68.3 | 45.8 | ||||||||||||
| Net share settlement from restricted stock awards | 0 | 0 | (3.5 | ) | (5.1 | ) | ||||||||||
| Dividends paid | (43.9 | ) | (40.8 | ) | (131.8 | ) | (122.7 | ) | ||||||||
| Payment of contingent liability related to acquisitions | 0 | 0 | (34.2 | ) | 0 | |||||||||||
| Other financing activities, net | (8.5 | ) | (6.9 | ) | (13.0 | ) | (12.2 | ) | ||||||||
Net cash (used in) provided by financing activities | (76.5 | ) | 51.4 | (418.9 | ) | (334.8 | ) | |||||||||
| Effect of exchange rate changes | 0.8 | (0.1 | ) | 1.3 | 1.7 | |||||||||||
(Decrease) increase in cash and cash equivalents | (87.6 | ) | 158.5 | 36.9 | 172.3 | |||||||||||
| Cash and cash equivalents classified within current assets held for sale, beginning of period | 0 | 0 | 0.3 | 0 | ||||||||||||
| Cash and cash equivalents, beginning of period | 309.4 | 153.3 | 184.6 | 139.5 | ||||||||||||
Cash and cash equivalents, end of period | $ | 221.8 | $ | 311.8 | $ | 221.8 | $ | 311.8 | ||||||||
Supplemental disclosures: | ||||||||||||||||
| Income taxes paid | $ | 107.1 | $ | 37.5 | $ | 132.8 | $ | 98.9 | ||||||||
| Interest paid | $ | 19.2 | $ | 16.5 | $ | 82.9 | $ | 77.1 | ||||||||
Noncash investing and financing activities: | ||||||||||||||||
| Debt issuance costs included in accounts payable and accrued liabilities | $ | 0.1 | $ | 1.3 | $ | 0 | $ | 1.3 | ||||||||
| Deferred tax liability established on date of acquisition | $ | 1.8 | $ | 2.9 | $ | 1.8 | $ | 2.8 | ||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 0 | $ | 0 | $ | 0 | $ | 247.6 | ||||||||
| Finance lease obligations | $ | 23.8 | $ | 9.8 | $ | 25.4 | $ | 19.2 | ||||||||
| Operating lease additions, net of terminations | $ | 2.3 | $ | 2.0 | $ | 47.5 | $ | 3.3 | ||||||||
| Tenant improvements included in Operating lease right-of-use assets, net | $ | 0.1 | $ | 0.9 | $ | 0.1 | $ | 1.6 | ||||||||
| Fixed assets included in accounts payable and accrued liabilities | $ | 1.1 | $ | 0.5 | $ | 1.1 | $ | 0.5 | ||||||||
| Dividend payable included in other liabilities | $ | 0.1 | $ | 0.8 | $ | 0.5 | $ | 1.0 | ||||||||
| Gain on sale of assets included in other current and long-term assets | $ | 0 | $ | 0 | $ | 3.5 | $ | 0 | ||||||||
| Held for sale assets contributed to a nonpublic company | $ | 0 | $ | 0 | $ | 65.9 | $ | 0 | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in millions, except for share and per share data, unless otherwise stated)
Verisk Analytics, Inc. and its consolidated subsidiaries (“Verisk” or the “Company”) enable risk-bearing businessesis a data analytics provider serving customers in insurance, energy and specialized markets, and financial services. Using various technologies to better understandcollect and manage their risks. The Company provides its customers proprietaryanalyze billions of records, Verisk draws on numerous data assets and domain expertise to provide first-to-market innovations that combined with analytic methods, create embedded decision support solutions. The Company is one of the largest aggregators and providers of data pertaining to property and casualty (“P&C”) insurance risks in the United States of America (“U.S.”). The Companyare integrated into customer workflows. Verisk offers predictive analytics and decision support solutions to customers in rating, underwriting, claims, catastrophe and weather risk, global risk analytics, natural resources intelligence, economic forecasting, commercial banking and finance, and many other fields.
Verisk was established to serve as the parent holding company of Insurance Services Office, Inc. (“ISO”) upon completion of the initial public offering ("IPO"(“IPO”), which occurred on October 9,2009. ISO was formed in 1971 as an advisory and rating organization for the property and casualty ("P&C&C") insurance industry to provide statistical and actuarial services, to develop insurance programs and to assist insurance companies in meeting state regulatory requirements. For overOver the past decade, the Company has broadened its data assets, entered new markets, placed a greater emphasis on analytics, and pursued strategic acquisitions. Verisk trades under the ticker symbol “VRSK” on the NASDAQNasdaq Global Select Market.
Since January 2020, an outbreak of the 2019 novel coronavirus (“COVID-19”) has evolved into a worldwide pandemic. The Company has modified its operations in line with its business continuity plans due to COVID-19. While its facilities generally remain open, the Company is making extensive use of the work-from-home model at this moment. On a daily basis, management is reviewing the Company's operations and there have been to date minimal interruptions in the Company's customer facing operations. Given the digital nature of the Company's business and the move toward cloud enablement, the Company expects to remain operationally stable and fully available to its customers. The Company is in compliance with all financial covenants and has not observed a loss of any significant customers, a significant deterioration in the collectability of receivables, a significant reduction in its liquidity nor a significant decline in subscription renewal rates.
The accompanying unaudited condensed consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the U.S. (“U.S. GAAP”). The preparation of financial statements in conformity with these accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include acquisition purchase price allocations, the fair value of goodwill, the realization of deferred tax assets and liabilities, acquisition related liabilities, fair value of stock basedstock-based compensation for stock options granted, and assets and liabilities for pension and postretirement benefits. Actual results may ultimately differ from those estimates.
The condensed consolidated financial statements as of September 30, 20172020 and for the three and nine months ended September 30, 2017 2020 and 2016,2019, in the opinion of management, include all adjustments, consisting of normal recurring items, to present fairly the Company’s financial position, results of operations and cash flows. The operating results for the three and nine months ended September 30, 20172020 are not necessarily indicative of the results to be expected for the full year. The condensed consolidated financial statements and related notes as of and for the three and nine months ended September 30, 20172020 have been prepared on the same basis as and should be read in conjunction with the annual report on Form 10-K10-K for the year ended December 31, 2016.2019. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules of the SecuritiesSEC. Certain reclassifications, including reflecting operating lease right-of-use assets, net, operating lease liabilities, and Exchange Commission (“SEC”).acquisition-related liabilities as a separate line item in 2019, have been made within the condensed consolidated statements of cash flows to conform to the respective 2020 presentation. The Company believes the disclosures made are adequate to keep the information presented from being misleading.
Recent Accounting Pronouncements
Accounting Standard | Description | Effective Date | Effect on Consolidated Financial Statements or Other Significant Matters |
Financial Instruments—Credit Losses (Topic 326) In June 2016, Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.2016-13, "Measurement of Credit Losses on Financial Instruments" ("Topic 326") | Topic 326 replaces the current “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the Current Expected Credit Loss ("CECL") model. Under the CECL model, an entity is required to present certain financial assets carried at amortized cost, such as trade receivables, at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement takes place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the “incurred loss” model required under U.S. GAAP, which delays recognition until it is probable a loss has been incurred. | The Company adopted these amendments on January 1, 2020. | Refer to the accompanying condensed consolidated statements of changes in stockholders' equity for the adjustment of the opening retained earnings and Note 4. Fair Value Measurements for further discussions. |
Reference Rate Reform (Topic 848) In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU No.2020-04"). | The amendment in this update provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendment in this update applies only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendment does not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. | The amendment in this update is effective for all entities as of March 12, 2020 through December 31, 2022. | The Company adopted this amendment on March 12, 2020. There was no impact to the condensed consolidated financial statements as of and for the nine months ended September 30, 2020. The Company continues to monitor the transition of LIBOR to alternative reference rate measures that will likely become effective post December 2021. |
Disaggregated revenues by type of service and by country are provided below for the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09,
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Insurance: | ||||||||||||||||
| Underwriting & rating | $ | 347.9 | $ | 312.5 | $ | 1,035.5 | $ | 933.1 | ||||||||
| Claims | 150.7 | 156.5 | 438.9 | 460.4 | ||||||||||||
Total Insurance | 498.6 | 469.0 | 1,474.4 | 1,393.5 | ||||||||||||
| Energy and Specialized Markets | 163.8 | 140.3 | 478.2 | 406.1 | ||||||||||||
| Financial Services | 40.3 | 43.4 | 118.6 | 130.7 | ||||||||||||
Total revenues | $ | 702.7 | $ | 652.7 | $ | 2,071.2 | $ | 1,930.3 | ||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenues: | ||||||||||||||||
| U.S. | $ | 537.6 | $ | 515.9 | $ | 1,584.2 | $ | 1,489.8 | ||||||||
| U.K. | 46.2 | 42.0 | 136.0 | 130.5 | ||||||||||||
| Other countries | 118.9 | 94.8 | 351.0 | 310.0 | ||||||||||||
Total revenues | $ | 702.7 | $ | 652.7 | $ | 2,071.2 | $ | 1,930.3 | ||||||||
Contract assets are defined as an entity's right to consideration in U.S. GAAP, including industry-specific requirements,exchange for goods or services that the entity has transferred to a customer when that right is conditioned on something other than the passage of time. As of September 30, 2020 and provides companies with a single revenue recognition model for recognizing revenue from contracts with customers. The core principle of Topic 606 is that a company should recognize revenueDecember 31, 2019, the Company had no contract assets. Contract liabilities are defined as an entity's obligation to depict the transfer of promised goods or services to customers in an amount that reflects the consideration toa customer for which the company expectsentity has received consideration (an amount of consideration is due) from the customer. As of September 30, 2020 and December 31, 2019, the Company had contract liabilities of $533.8 million and $443.2 million, respectively. The $90.6 million increase in contract liabilities from December 31, 2019 to be entitledSeptember 30, 2020 was primarily due to billings of $405.6 million that were paid in exchange for those goods or services. The two permitted transition methods under Topic 606 are the full retrospective method, in which case the standard would be applied to each prior reporting period presented and the cumulative effectadvance, partially of applying the standard would befset by $315.0 million of revenue recognized at the earliest period shown, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. In July 2015, the FASB approved the deferral of Topic 606's effective date by one year. Topic 606 is effective for annual reporting periods beginning after December 15, 2017. The FASB permits companies to adopt Topic 606 early, but not before the original effective date of the annual reporting periods beginning after December 15, 2016.
The Company’s most significant remaining performance obligations relate to providing customers with the right to use and update the online content over the remaining contract term. Revenues expected to be recognized in financing activities.the future related to performance obligations, included within deferred revenues and other liabilities, that are unsatisfied were $533.8million and $443.2 million as of September 30, 2020 and December 31, 2019, respectively. The treatmentdisclosure of forfeitures has not changed asthe timing for satisfying the performance obligation is based on the requirements of contracts with customers. However, from time to time, these contracts may be subject to modifications, impacting the timing of satisfying the performance obligations. These performance obligations, which are expected to be satisfied within one year, comprised approximately 98% and 99% of the balance at September 30, 2020 and December 31, 2019, respectively.
The Company recognizes an asset for incremental costs of obtaining a contract with a customer if it expects the benefits of those costs to be longer than one year. As of September 30, 2020 and December 31, 2019, the Company is electing to continue the current processhad deferred commissions of estimating the number of forfeitures. Accordingly, excess tax benefits from exercised stock options$71.0 million and $63.7 million, respectively, which have been included in 2017 were recorded as income tax benefit"Prepaid expenses" and "Other noncurrent assets" in the accompanying condensed consolidated statements of operations and presented as an operating activity on the condensed consolidated statements of cash flows for the nine months ended September 30, 2017. There was no cumulative-effect adjustment required to retained earnings under the prospective method as of the beginning of the year because all tax benefits had been previously recognized when the tax deductions related to stock compensation were utilized to reduce tax payable. The Company did not record any deferred tax assets or tax liabilities as the result of the adoption of ASU 2016-09.
Certain assets and liabilities of the Company are reported at fair value in the accompanying condensed consolidated balance sheets. To increase consistency and comparability of assets and liabilities recorded at fair value, ASC 820-10,
Level 1 - | ||
Assets or liabilities for which the identical item is traded on an active exchange, such as publicly-traded instruments. | ||
Level 2 - | Assets | |
Level 3 - | Assets or liabilities for which significant valuation assumptions are not readily observable in the market; instruments valued based on the best available data, some of which are internally-developed, and considers risk premiums that market participants would require. |
The fair values of cash and cash equivalents, accounts receivable, securities accounted for under ASC 323-10-25, accounts payable and accrued liabilities, and short-term debt approximate their carrying amounts because of the short-term nature of these instruments.
Quoted Prices in Active Markets for Identical Assets (Level 1) | |||
| September 30, 2017 | |||
| Registered investment companies (1) | $ | 3.7 | |
| December 31, 2016 | |||
| Registered investment companies (1) | $ | 3.4 | |
The Company has elected not elected to carry its subordinated promissory note receivable and long-term debt at fair value. The carrying value of the subordinated promissory note receivable represents amortized cost and has been included in "Other assets" in the accompanying condensed consolidated balance sheets. The carrying value of the long-term debt represents amortized cost, lessinclusive of unamortized premium, and net of unamortized discount and debt issuance costs. The Company assesses the fair value of these financial instruments based on an estimate of interest rates available to the Company for financial instruments with similar features, the Company’s current credit rating and spreads applicable to the Company. The following table summarizes the carrying value and estimated fair value of these financial instruments as of September 30, 20172020 and December 31, 2016,2019, respectively:
2020 | 2019 | ||||||||||||||||
Fair Value | Carrying | Estimated | Carrying | Estimated | |||||||||||||
Hierarchy | Value | Fair Value | Value | Fair Value | |||||||||||||
Financial instruments not carried at fair value: | |||||||||||||||||
Current portion of long-term debt and long-term debt excluding finance lease liabilities and syndicated revolving credit facility debt issuance costs | Level 2 | $ | 3,140.4 | $ | 3,642.2 | $ | 2,650.4 | $ | 2,902.2 | ||||||||
On February 1, 2020, the sale of the aerial imagery sourcing group was completed. The Company contributed the assets related to the disposed business and cash of $63.8 million in exchange for a non-controlling 35.0% ownership interest in a nonpublic company, Vexcel Group, Inc ("Vexcel"). As of September 30, 2020, the Company had an investment of $129.7 million related to such interest accounted for in accordance with ASC 820-10. The value of the investment is based on management estimates with the assistance of valuations performed by third party specialists. This investment was included in "Other noncurrent assets" in the accompanying condensed consolidated balance sheet. For the three and nine months ended September 30, 2020, there was 0 provision for credit losses related to this equity investment. Refer to Note 7. Dispositions for further discussion.
As of September 30, 2020 and December 31, 2019, the Company had securities of $14.0 million, which were accounted for under ASC 323-10-25,The Equity Method of Accounting for Investments in Common Stock ("ASC 323-10-25"). The Company does not have the ability to exercise significant influence over the investees’ operating and financial policies. As of September 30, 2020 and December 31, 2019, the Company also had an investment in a limited partnership of $14.9 million and $13.1 million, respectively, accounted for in accordance with ASC 323-10-25 as an equity method investment. These investments were included in "Other noncurrent assets" in the accompanying condensed consolidated balance sheet. For the three and nine months ended September 30, 2020, there was 0 provision for credit losses related to these investments.
The Company has operating and finance leases for corporate offices, data centers, and certain equipment that are accounted for under ASC 842. The leases have remaining lease terms ranging from one year to fourteen years, some of which include the options to extend the leases for up to twenty years, and some of which include the options to terminate the leases within one year. Extension and termination options are considered in the calculation of the right-of-use (“ROU”) assets and lease liabilities when the Company determines it is reasonably certain that it will exercise those options.
| 2017 | 2016 | ||||||||||||||||
| Fair Value Hierarchy | Carrying Value | Estimated Fair Value | Carrying Value | Estimated Fair Value | |||||||||||||
| Financial instruments not carried at fair value: | |||||||||||||||||
| Subordinated promissory note receivable | Level 2 | $ | 94.8 | $ | 84.9 | $ | 84.1 | $ | 76.8 | ||||||||
| Long-term debt excluding capitalized leases | Level 2 | $ | 2,279.8 | $ | 2,456.7 | $ | 2,277.3 | $ | 2,402.6 | ||||||||
The following table presents lease cost, cash paid for amounts included in the measurement of lease liabilities, ROU assets obtained, weighted-average remaining lease terms, and weighted-average discount rates for finance and operating leases for the three and nine months ended September 30, 2020 and 2019, respectively:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Lease cost: | ||||||||||||||||
| Operating lease cost (1) | $ | 13.4 | $ | 11.8 | $ | 38.7 | $ | 35.9 | ||||||||
Finance lease costs | ||||||||||||||||
| Depreciation of finance lease assets (2) | 3.1 | 4.0 | 6.2 | 10.1 | ||||||||||||
| Interest on finance lease liabilities (3) | 0.2 | 0.4 | 0.5 | 1.2 | ||||||||||||
Total lease cost | $ | 16.7 | $ | 16.2 | $ | 45.4 | $ | 47.2 | ||||||||
Other information: | ||||||||||||||||
Cash paid for amounts included in the measurement of lease liabilities | ||||||||||||||||
| Operating cash outflows from operating leases | $ | (13.4 | ) | $ | (10.8 | ) | $ | (39.0 | ) | $ | (34.4 | ) | ||||
| Operating cash outflows from finance leases | $ | (0.2 | ) | $ | (0.4 | ) | $ | (0.5 | ) | $ | (1.2 | ) | ||||
| Financing cash outflows from finance leases | $ | (8.6 | ) | $ | (6.9 | ) | $ | (13.0 | ) | $ | (11.4 | ) | ||||
| Weighted-average remaining lease term in years - operating leases | 9.3 | 9.5 | 9.3 | 9.5 | ||||||||||||
| Weighted-average remaining lease term in years - finance leases | 2.6 | 2.8 | 2.6 | 2.8 | ||||||||||||
| Weighted-average discount rate - operating leases | 4.1 | % | 3.9 | % | 4.1 | % | 3.9 | % | ||||||||
| Weighted-average discount rate - finance leases | 4.0 | % | 4.5 | % | 4.0 | % | 4.5 | % | ||||||||
_______________
(1) Included in "Cost of revenues" and "Selling, general and administrative" expenses in the accompanying condensed consolidated statements of operations
(2) Included in "Depreciation and amortization of fixed assets" in the accompanying condensed consolidated statements of operations
(3) Included in "Interest expense" in the accompanying condensed consolidated statements of operations
The ROU assets and lease liabilities for finance leases were $29.1 million and $20.6 million, respectively, as of September 30, 2020. The ROU assets and lease liabilities for finance leases were $9.9 million and $7.7 million, respectively, as of December 31, 2019. The ROU assets for finance leases were included in "Fixed assets, net" in the accompanying condensed consolidated balance sheets. The lease liabilities for finance leases were included in the "Short-term debt and current portion of long-term debt" and "Long-term debt" in the accompanying condensed consolidated balance sheets (see Note 10. Debt).
Maturities of lease liabilities for the remainder of 2020 and the years through 2025 and thereafter are as follows:
September 30, 2020 | ||||||||
Years Ending | Operating Leases | Finance Leases | ||||||
| 2020 | $ | 13.1 | $ | 0.7 | ||||
| 2021 | 47.6 | 11.3 | ||||||
| 2022 | 43.4 | 9.7 | ||||||
| 2023 | 38.3 | 0.2 | ||||||
| 2024 | 29.1 | 0 | ||||||
| 2025 and thereafter | 170.3 | 0 | ||||||
Total lease payments | 341.8 | 21.9 | ||||||
| Less: Amount representing interest | (62.4 | ) | (1.3 | ) | ||||
| Present value of total lease payments | $ | 279.4 | $ | 20.6 | ||||
2020 Acquisition
On January 21, 2017, September 9, 2020, the Company acquired 100 percent of the stock of Arium LimitedFranco Signor LLC ("Arium") for a net cash purchase price of $1.9 million. Arium specializes in liability risk modeling and decision support. Arium has become part of the insurance vertical within the Decision Analytics segment, and enables the Company to provide its customers with additional
The preliminary purchase price allocation of the 2020acquisition is presented in the table below.
| Healix | Fintellix | G2 | Sequel | LCI | Others | Total | |||||||||||||||||||||
| Cash and cash equivalents | $ | 0.9 | $ | 1.1 | $ | 1.0 | $ | 16.0 | $ | 1.1 | $ | 2.0 | $ | 22.1 | |||||||||||||
| Accounts receivable | 0.9 | 2.1 | 3.4 | 9.5 | 3.1 | 2.9 | 21.9 | ||||||||||||||||||||
| Current assets | — | 0.9 | 3.6 | 1.4 | — | 0.7 | 6.6 | ||||||||||||||||||||
| Fixed assets | — | 0.1 | 6.4 | 7.5 | 5.7 | 11.9 | 31.6 | ||||||||||||||||||||
| Intangible assets | 21.1 | 6.6 | 41.0 | 107.3 | 55.7 | 12.2 | 243.9 | ||||||||||||||||||||
| Goodwill | 35.2 | 11.3 | 74.2 | 226.0 | 100.7 | 33.5 | 480.9 | ||||||||||||||||||||
| Other assets | 7.5 | 2.0 | 2.8 | — | 12.8 | 3.3 | 28.4 | ||||||||||||||||||||
| Total assets acquired | 65.6 | 24.1 | 132.4 | 367.7 | 179.1 | 66.5 | 835.4 | ||||||||||||||||||||
| Current liabilities | 1.1 | 1.3 | 3.2 | 9.9 | 1.1 | 1.4 | 18.0 | ||||||||||||||||||||
| Deferred revenues | 0.1 | 0.8 | 0.4 | 2.4 | 0.3 | 1.7 | 5.7 | ||||||||||||||||||||
| Deferred income taxes, net | 3.6 | 2.2 | 13.0 | 19.1 | 13.2 | 2.1 | 53.2 | ||||||||||||||||||||
| Other liabilities | 7.5 | 1.8 | 2.8 | — | 12.8 | 6.3 | 31.2 | ||||||||||||||||||||
| Total liabilities assumed | 12.3 | 6.1 | 19.4 | 31.4 | 27.4 | 11.5 | 108.1 | ||||||||||||||||||||
| Net assets acquired | 53.3 | 18.0 | 113.0 | 336.3 | 151.7 | 55.0 | 727.3 | ||||||||||||||||||||
| Cash acquired | (0.9 | ) | (1.1 | ) | (1.0 | ) | (16.0 | ) | (1.1 | ) | (2.0 | ) | (22.1 | ) | |||||||||||||
| Net cash purchase price | $ | 52.4 | $ | 16.9 | $ | 112.0 | $ | 320.3 | $ | 150.6 | $ | 53.0 | $ | 705.2 | |||||||||||||
Franco Signor | ||||
| Cash and cash equivalents (1) | $ | 10.9 | ||
Accounts receivable | 2.6 | |||
Other current assets | 0.5 | |||
Fixed assets | 0.5 | |||
Operating lease right-of-use assets, net | 1.5 | |||
Intangible assets | 59.2 | |||
Goodwill | 99.9 | |||
Other assets | 8.0 | |||
Total assets acquired | 183.1 | |||
Current liabilities (1) | (6.4 | ) | ||
Deferred revenues | (0.4 | ) | ||
Operating lease liabilities | (1.4 | ) | ||
Deferred income tax, net | (1.8 | ) | ||
Other liabilities | (8.0 | ) | ||
Total liabilities assumed | (18.0 | ) | ||
Net assets acquired | 165.1 | |||
Cash and cash equivalents | (10.9 | ) | ||
Restricted cash (1) | 5.7 | |||
| Cash acquired | (5.2 | ) | ||
Net cash purchase price | $ | 159.9 | ||
_______________
(1) Within cash and cash equivalents, there is $5.7 million of restricted cash related to Franco Signor's professional administrative services for Medicare Set Asides, with an offsetting liability of $5.7 million included within current liabilities.
The preliminary amounts assigned to intangible assets by type for the 2017 acquisitions2020 acquisition are summarized in the table below:
| Weighted Average Useful Life | Total | |||||
| Technology-related | 7 years | $ | 66.3 | |||
| Marketing-related | 8 years | 15.3 | ||||
| Customer-related | 10 years | 110.0 | ||||
| Database-related | 12 years | 52.3 | ||||
| Total intangible assets | $ | 243.9 | ||||
Weighted Average Useful Life in Years | Total | |||||||
Technology | 6 | $ | 2.1 | |||||
Marketing | 5 | 1.2 | ||||||
Customer | 11 | 55.9 | ||||||
Total intangible assets | $ | 59.2 | ||||||
The preliminary allocations of the purchase price for the 20162020 and 20172019 acquisitions with less than a year ownership are subject to revisions as additional information is obtained about the facts and circumstances that existed as of each acquisition date. The revisions may have a significant impact on the condensed consolidated financial statements. The allocations of the purchase price will be finalized once all the information is obtained, but not to exceed one year from the acquisition date. The primary areas of the purchase price allocation that are not yet finalized relate to operating leases, income and non-income taxes, deferred revenues, the valuation of intangible assets acquired, and residual goodwill. The goodwill associated with the Company’s acquisitions include the acquired assembled work force, the value associated with the opportunity to leverage the work force to continue to develop the technology and content assets, as well as the ability to grow the Company through adding additional customer relationships or new solutions in the future. Of the $99.9 million in goodwill associated with the Franco Signor acquisition, $22.8 million is not deductible for tax purposes.The preliminary amounts assigned to intangible assets by type for these acquisitions were based upon the Company's valuation model and historical experiences with entities with similar business characteristics.
For the nine months ended September 30, 2017,2020, the Company finalized the purchase accounting for the acquisitions of RII, Greentech MediaContent as a Service ("CaaS") and Quest Offshore Property Pres Wizard LLC during the measurement periods in accordance with ASC 805.805,Business Combinations. The impactimpacts of finalization of the purchase accounting associated with these acquisitions were not material to the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 20172020 and 2016.
For the three and nine months ended September 30, 2017, the Company incurred transaction costs related to Arium, Healix, ENI, Fintellix, MAKE, Aerial Imagery acquisitions, G2, Sequel and LCI of $3.2 million and $5.9 million, respectively. For the three and nine months ended September 30, 2016,2020, the Company incurred transaction costs of $0.8$0.5 million and $1.0 million, respectively, related to the acquisitions2020 acquisition. For the three and nine months ended September 30,2019, the Company incurred transaction costs of the RII, Greentech Media$0.3 million and Quest Offshore.$1.6 million, respectively. The transaction costs were included within "Selling, general and administrative" expenses in the accompanying condensed consolidated statements of operations. For the 2017 acquisitions, the goodwill of $465.8 million associated with the stock purchases of Arium, Healix, ENI, Fintellix, MAKE, G2, Sequel and LCI is not deductible for tax purposes, with the exception of $19.9 million of goodwill attributable to G2.
The goodwill of $15.1 million associated with the Aerial Imagery asset acquisitions is deductible for tax purposes. For the 2016 acquisitions, the goodwill of $34.9 million associated with the stock purchases of RII and Greentech Media is not deductible for tax purposes, whereas the goodwill of $6.2 million associated with the asset acquisition of Quest Offshore is deductible for tax purposes.
Acquisition Escrows
Pursuant to the related acquisition agreements, the Company has funded various escrow accounts to satisfy pre-acquisition indemnity and tax claims arising subsequent to the applicable acquisition date, as well as a portion of the contingent payments.date. At September 30, 20172020 and December 31, 2016,2019, the current portion of the escrows amounted to $19.9$1.7 million and $4.1$0.5 million, respectively, and the noncurrent portion of the escrows amounted to $22.1$16.8 million and $6.3$10.5 million, respectively. The current and noncurrent portions of the escrows have been included in “Other current assets” and "Other assets"“Other assets” in the accompanying condensed consolidated balance sheets, respectively.
The acquisitions of Power Advocate, Inc., Healix International Holdings Limited, Emergence Network Intelligence Limited, Validus-IVC Limited, Arium Limited, and Rebmark Legal Solutions Limited include acquisition related contingencies, for which the sellers of these acquisitions could receive additional payments by achieving the specific predetermined revenue, EBITDA, and EBITDA margin earn-out targets for exceptional performance. The Company believes that the liabilities recorded as of September 30,2020 and December 31,2019 reflect the best estimate of acquisition related contingent payments. The associated current acquisition related liabilities were $12.6 million and $111.2 million as of September 30,2020 and December 31, 2019, respectively. The decrease in the current acquisition related liabilities is related to earnout payments of $98.6 million through the nine months ended September 30, 2020. The associated noncurrent acquisition related liabilities for these acquisitions were $0.2 million as of September 30,2020 and December 31,2019.
In the third quarter of 2019, the Company sold 100 percentits retail analytics solution business for $2.0 million excluding contingent and indemnity escrows of $0.4 million. The sale resulted in a loss of $6.2 million that was included within "Other operating loss (income)" in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2019.
In the fourth quarter of 2019, the Company’s compliance background screening business and the aerial imagery sourcing group within the remote imagery business qualified as assets held for sale. These assets held for sale were part of the stockclaims category within the Company’s Insurance segment as of its healthcareDecember 31, 2019.
On February 1, 2020, the sale of the aerial imagery sourcing group was completed. The Company contributed assets related to the disposed business, Verisk Health ("Verisk Health"),including cash of $63.8 million, in exchange for a purchase price that consisted of $714.6 million of cash consideration afternon-controlling 35.0% ownership interest in a working capital adjustment of $5.4 million, a subordinated promissory note with a face value of $100.0 million and an eight year maturity (the "Note"), and other contingent consideration (collectively,nonpublic company, Vexcel. The Company determined the "Sale"). Results of operations for the healthcare business are reported as a discontinued operation for the nine months ended September 30, 2016.
On February 14, 2020, the sale of the compliance background screening business was completed for net cash proceeds of $23.1 million. A gain of $15.9 million was included in “Other assets” in"Other operating loss (income)" within the accompanying condensed consolidated balance sheets.
| Nine Months Ended September 30, | |||||||
| 2017 | 2016 | ||||||
| Revenues from discontinued operations | $ | — | $ | 112.3 | |||
| Expenses: | |||||||
| Cost of revenues (exclusive of items shown separately below) | — | 75.9 | |||||
| Selling, general and administrative | — | 36.6 | |||||
| Depreciation and amortization of fixed assets | — | 7.0 | |||||
| Amortization of intangible assets | — | 5.9 | |||||
| Total expenses | — | 125.4 | |||||
| Operating loss | — | (13.1 | ) | ||||
| Other income: | |||||||
| Gain on sale | — | 269.3 | |||||
| Investment income and others, net | — | 0.3 | |||||
| Total other income | — | 269.6 | |||||
| Income from discontinued operations before income taxes | — | 256.5 | |||||
| Provision for income taxes (included tax on gain of $118.0) | — | (118.6 | ) | ||||
| Income from discontinued operations, net of tax | $ | — | $ | 137.9 | |||
In the first quarter of 2020, the Company's data warehouse business within the Financial Services segment qualified as assets held for sale and was sold on March 1, 2020. The Company recorded a gain of $3.5 million in "Other operating activities and net cash used in investing activities fromloss (income)" within the discontinued operationaccompanying condensed consolidated statements of operations for the nine months ended September 30, are presented below:
| 2017 | 2016 | ||||||
| Net cash provided by operating activities | $ | — | $ | 21.4 | |||
| Net cash used in investing activities | $ | — | $ | (10.6 | ) | ||
The following is a summary of the change in goodwill from December 31, 20162019 through September 30, 2017,2020, both in total and as allocated to the Company’s operating segments:
Risk Assessment | Decision Analytics | Total | |||||||||
| Goodwill at December 31, 2016 (1) | $ | 71.3 | $ | 2,506.8 | $ | 2,578.1 | |||||
| Current year acquisitions | 35.2 | 445.7 | 480.9 | ||||||||
| Purchase accounting reclassification | (1.6 | ) | (2.2 | ) | (3.8 | ) | |||||
| Foreign currency translation | 3.2 | 130.4 | 133.6 | ||||||||
| Goodwill at September 30, 2017 (1) | $ | 108.1 | $ | 3,080.7 | $ | 3,188.8 | |||||
Insurance | Energy and Specialized Markets | Financial Services | Total | |||||||||||||
Goodwill at December 31, 2019 | $ | 998.8 | $ | 2,389.5 | $ | 476.0 | $ | 3,864.3 | ||||||||
| Current year acquisition | 99.9 | 0 | 0 | 99.9 | ||||||||||||
| Purchase accounting reclassifications | 3.1 | (1.2 | ) | (0.2 | ) | 1.7 | ||||||||||
| Current period adjustment (1) | 21.4 | (19.5 | ) | 0 | 1.9 | |||||||||||
| Foreign currency translation | (9.6 | ) | (32.9 | ) | (0.4 | ) | (42.9 | ) | ||||||||
Goodwill at September 30, 2020 | $ | 1,113.6 | $ | 2,335.9 | $ | 475.4 | $ | 3,924.9 | ||||||||
_____________
(1) Of which $19.5 million relates to a segment reclassification, refer to Note 14. Segment Reporting
Goodwill and intangible assets with indefinite lives are subject to impairment testing annually as of June 30, or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. Goodwill impairment testing compares the carrying value of each reporting unit to its fair value. If the fair value of the reporting unit exceeds the carrying value of the net assets, including goodwill assigned to that reporting unit, goodwill is not impaired. If the carrying value of the reporting unit’s net assets including goodwill exceeds the fair value of the reporting unit, then the Company will determine the implied fair value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then an impairment loss is recorded for the difference between the carrying amount and the implied fair value of goodwill.the reporting unit. The Company completed the required annual impairment test as of June 30, 2017,2020, and concluded that there was no0 impairment of goodwill.
The Company’s intangible assets and related accumulated amortization consisted of the following:
Weighted Average Useful Life | Cost | Accumulated Amortization | Net | ||||||||||
| September 30, 2017 | |||||||||||||
| Technology-based | 7 years | $ | 387.8 | $ | (215.9 | ) | $ | 171.9 | |||||
| Marketing-related | 17 years | 257.8 | (59.9 | ) | 197.9 | ||||||||
| Contract-based | 6 years | 5.0 | (5.0 | ) | — | ||||||||
| Customer-related | 13 years | 618.5 | (161.7 | ) | 456.8 | ||||||||
| Database-related | 19 years | 481.0 | (51.4 | ) | 429.6 | ||||||||
| Total intangible assets | $ | 1,750.1 | $ | (493.9 | ) | $ | 1,256.2 | ||||||
| December 31, 2016 | |||||||||||||
| Technology-based | 7 years | $ | 310.9 | $ | (196.6 | ) | $ | 114.3 | |||||
| Marketing-related | 17 years | 227.5 | (47.5 | ) | 180.0 | ||||||||
| Contract-based | 6 years | 5.0 | (5.0 | ) | — | ||||||||
| Customer-related | 14 years | 483.1 | (128.5 | ) | 354.6 | ||||||||
| Database-related | 20 years | 393.9 | (32.0 | ) | 361.9 | ||||||||
| Total intangible assets | $ | 1,420.4 | $ | (409.6 | ) | $ | 1,010.8 | ||||||
Weighted Average Useful Life in Years | Cost | Accumulated Amortization | Net | ||||||||||
September 30, 2020 | |||||||||||||
| Technology | 7 | $ | 519.8 | $ | (330.2 | ) | $ | 189.6 | |||||
| Marketing | 16 | 261.6 | (105.4 | ) | 156.2 | ||||||||
| Contract | 6 | 5.0 | (5.0 | ) | 0 | ||||||||
| Customer | 13 | 947.8 | (328.2 | ) | 619.6 | ||||||||
| Database | 19 | 475.4 | (124.5 | ) | 350.9 | ||||||||
| Total intangible assets | $ | 2,209.6 | $ | (893.3 | ) | $ | 1,316.3 | ||||||
December 31, 2019 | |||||||||||||
Technology | 7 | $ | 519.2 | $ | (291.9 | ) | $ | 227.3 | |||||
Marketing | 16 | 265.3 | (94.3 | ) | 171.0 | ||||||||
Contract | 6 | 5.0 | (5.0 | ) | 0 | ||||||||
Customer | 13 | 901.2 | (278.0 | ) | 623.2 | ||||||||
Database | 19 | 484.6 | (107.2 | ) | 377.4 | ||||||||
Total intangible assets | $ | 2,175.3 | $ | (776.4 | ) | $ | 1,398.9 | ||||||
Amortization expense related to intangible assets for the three months ended September 30, 20172020 and 20162019 was $27.5$41.5 million and $22.7$33.3 million, respectively. Amortization expense related to intangible assets for the nine months ended September 30, 2017 2020 and 20162019 was $73.6$123.6 million and $70.4$100.1 million, respectively. Estimated amortization expense for the remainder of 20172020 and the years through 20222025 and thereafter for intangible assets subject to amortization is as follows:
Year | Amount | |||
| 2020 | $42.3 | |||
| 2021 | 158.4 | |||
| 2022 | 146.8 | |||
| 2023 | 134.7 | |||
| 2024 | 129.9 | |||
| 2025 and thereafter | 704.2 | |||
| $ | 1,316.3 | |||
| Year | Amount | ||
| 2017 | $ | 30.5 | |
| 2018 | 121.8 | ||
| 2019 | 120.8 | ||
| 2020 | 118.2 | ||
| 2021 | 108.3 | ||
| 2022 and thereafter | 756.6 | ||
| $ | 1,256.2 | ||
The Company’s effective tax rate for the three and nine months ended September 30, 20172020 was 33.19%22.6% and 31.51%, respectively,21.3% compared to the effective tax rate for the three and nine months ended September 30, 20162019 of 26.00%15.5% and 30.29%19.8%. The effective tax rate for the three and nine months ended September 30, 2017 is2020 was higher than theSeptember 30, 2019 effective tax rate primarily due to lower impact of tax benefits from equity compensation in the current period versus the prior period, the deferred tax impact of the tax rate increase in the United Kingdom that took place and was recorded in the current period, and favorable audit settlement benefits recognized in the prior period. These increases were partially offset by lower nondeductible earn-out expenses in the current period versus the prior period. The effective tax rate for the three and nine months ended September 30, 20162020 was higher than the September 30, 2019 effective tax rate primarily due to reducedthe deferred tax benefitsimpact of the tax rate increase in the United Kingdom that took place in and was recorded in the current period, favorable audit settlement benefits recognized in the prior period, and the tax expense recorded in the current period in connection with the Company’s disposition of its aerial imagery sourcing business resulting from legislation enacteddifferences in the U.K.,book and mixtax basis of foreign income,the assets and entities disposed of. These increases were partially offset by lower nondeductible earn-out expenses in the tax rate benefit of adopting ASU No. 2016-09.current period versus the prior period. The difference between statutory tax rates and the Company’s effective tax rate is primarily due to tax benefits attributable to income earned in foreign jurisdictions with tax rates lower than the U.S. rate,equity compensation, offset by additional state and local income taxes.
The following table presents short-term and long-term debt by issuance as of September 30, 20172020 and December 31, 2016:
Issuance Date | Maturity Date | 2017 | 2016 | ||||||||
| Short-term debt and current portion of long-term debt: | |||||||||||
| Syndicated revolving credit facility | Various | Various | $ | 595.0 | $ | 100.0 | |||||
| Capital lease obligations | Various | Various | 7.9 | 6.8 | |||||||
| Short-term debt and current portion of long-term debt | 602.9 | 106.8 | |||||||||
| Long-term debt: | |||||||||||
| Senior notes: | |||||||||||
| 4.000% senior notes, less unamortized discount and debt issuance costs of $9.5 and $10.4, respectively | 5/15/2015 | 6/15/2025 | 890.5 | 889.6 | |||||||
| 5.500% senior notes, less unamortized discount and debt issuance costs of $4.9 and $5.0, respectively | 5/15/2015 | 6/15/2045 | 345.1 | 345.0 | |||||||
| 4.125% senior notes, less unamortized discount and debt issuance costs of $3.0 and $3.5, respectively | 9/12/2012 | 9/12/2022 | 347.0 | 346.5 | |||||||
| 4.875% senior notes, less unamortized discount and debt issuance costs of $0.8 and $1.4, respectively | 12/8/2011 | 1/15/2019 | 249.2 | 248.6 | |||||||
| 5.800% senior notes, less unamortized discount and debt issuance costs of $1.9 and $2.4, respectively | 4/6/2011 | 5/1/2021 | 448.1 | 447.6 | |||||||
| Capital lease obligations | Various | Various | 3.1 | 7.1 | |||||||
| Syndicated revolving credit facility debt issuance costs | Various | Various | (4.2 | ) | (4.2 | ) | |||||
| Long-term debt | 2,278.8 | 2,280.2 | |||||||||
| Total debt | $ | 2,881.7 | $ | 2,387.0 | |||||||
Issuance Date | Maturity Date | 2020 | 2019 | ||||||||
Short-term debt and current portion of long-term debt: | |||||||||||
Syndicated revolving credit facility | Various | Various | $ | 0 | $ | 495.0 | |||||
Senior notes: | |||||||||||
5.800% senior notes, less unamortized discount and debt issuance costs of $(0.3) | 4/6/2011 | 5/1/2021 | 449.7 | 0 | |||||||
Finance lease liabilities (1) | Various | Various | 10.7 | 4.4 | |||||||
Short-term debt and current portion of long-term debt | 460.4 | 499.4 | |||||||||
Long-term debt: | |||||||||||
Senior notes: | |||||||||||
3.625% senior notes, less unamortized discount and debt issuance costs of $(10.9) | 5/13/2020 | 5/15/2050 | 489.1 | 0 | |||||||
4.125% senior notes, inclusive of unamortized premium, and net of unamortized discount and debt issuance costs of $12.8 and $13.9, respectively | 3/6/2019 | 3/15/2029 | 612.8 | 613.9 | |||||||
4.000% senior notes, less unamortized discount and debt issuance costs of $(5.7) and $(6.7), respectively | 5/15/2015 | 6/15/2025 | 894.3 | 893.3 | |||||||
5.500% senior notes, less unamortized discount and debt issuance costs of $(4.3) and $(4.5), respectively | 5/15/2015 | 6/15/2045 | 345.7 | 345.5 | |||||||
4.125% senior notes, less unamortized discount and debt issuance costs of $(1.2) and $(1.6), respectively | 9/12/2012 | 9/12/2022 | 348.8 | 348.4 | |||||||
5.800% senior notes, less unamortized discount and debt issuance costs of $(0.7) | 4/6/2011 | 5/1/2021 | 0 | 449.3 | |||||||
Finance lease liabilities (1) | Various | Various | 9.9 | 3.3 | |||||||
Syndicated revolving credit facility debt issuance costs | Various | Various | (1.7 | ) | (2.1 | ) | |||||
Long-term debt | 2,698.9 | 2,651.6 | |||||||||
Total debt | $ | 3,159.3 | $ | 3,151.0 | |||||||
_______________
(1) Refer to Note 5. Leases
On May 8, 2020, the Company had senior notes withcompleted an issuance of $500.0 million aggregate principal amount of $2,300.03.625% senior notes due 2050 (the "2050 notes"). The 2050 notes mature on May 15, 2050 and accrue interest at a fixed rate of 3.625% per annum. Interest is payable semiannually on the 2050 notes on May 15th and November 15th of each year, beginning on November 15, 2020. The 2050 notes were issued at a discount of $5.2 million, outstanding and was in compliance with their financial debt covenants.
As of September 30, 2020, the Company had a $1,000.0 million committed senior unsecured Credit Facility with Bank of America N.A., HSBC Bank USA, N.A., JP Morgan Chase Bank, N.A., Wells Fargo Bank, National Association, Citibank, N.A., Credit Suisse AG, Cayman Islands Branch, Morgan Stanley Bank, N.A., TD Bank, N.A., and a syndicate of banks.the Northern Trust Company. The Credit Facility may be used for general corporate purposes, including working capital needs and capital expenditures, acquisitions, dividends, and the share repurchase program (the "Repurchase Program"). TheAs of September 30, 2020, the Company was in compliance with all financial and other debt covenants under the Credit Facility asFacility. As of September 30, 2017. As of September 30, 20172020 and December 31, 2016,2019, the Company had outstanding borrowingsavailable capacity under the Credit FacilityFacility was $994.8 million and $500.2 million, net of $595.0the letters of credit of $5.2 million and $4.8 million, and $100.0 million, respectively. On May 18, 2017, the Company entered into the third amendment to the Credit Facility, which, among other things, extended the maturity date one year to May 15, 2022.
The Company has 2,000,000,000 shares of authorized common stock.stock as of September 30, 2020 and December 31, 2019. The Company's common shares have rights to any dividend declared by the board of directors (the "Board"), subject to any preferential or other rights of any outstanding preferred stock, and voting rights to elect all thirteencurrent members of the Board.
The Company has 80,000,000 shares of authorized preferred stock, par value $0.001 per share. The preferred shares have preferential rights over the common shares with respect to dividends and net distribution upon liquidation. The Company did not issue any preferred shares as of September 30, 2017.2020. At September 30, 2020 and December 31, 2019, the adjusted closing price of Verisk's common stock was $185.31 and $148.61 per share, respectively.
On February 12, 2020, April 29, 2020 and July 29, 2020, the Company’s Board approved a cash dividend of $0.27 per share of common stock issued and outstanding to the holders of record as of March 13, 2020, June 15, 2020 and September 15, 2020, respectively. A cash dividend of $43.9 million, $44.0 million and $43.9 million was paid on March 31, 2020, June 30,2020 and September 30, 2020, respectively, and recorded as a reduction to retained earnings. The Company paid a cash dividend of $40.9 million, $41.0 million and $40.8 million on March 29, 2019, June 28, 2019 and September 30, 2019 at $0.25 per share of common stock issued and outstanding to the holders of record as of March 15, 2019, June 14, 2019 and September 13, 2019, respectively.
Since May 2010, the Company has authorized repurchases of up to $3,800.0 million of its common stock through its Repurchase Program, inclusive of the $500.0 million authorization approved by the Board on February 12, 2020. Since the introduction of the Repurchase Programshare repurchase as a feature of the Company's capital management strategies in 2010, the Company has authorized repurchases of up to $2,800.0 million of its common stock and has repurchased shares with an aggregate value of $2,433.8$3,471.2 million. The Company repurchased 3,356,360 sharesAs of common stock with an aggregate value of $269.8 million during the nine months ended September 30, 2017. As of September 30, 2017,2020, the Company had $366.2$328.8 million available to repurchase shares.shares through its Repurchase Program. The Company has no obligation to repurchase stock under this program and intends to use this authorization as a means of offsetting dilution from the issuance of shares under the KSOP, the Verisk 2013 Equity Incentive Plan (the “2013"2013 Incentive Plan"), the Verisk 2009 Equity Incentive Plan (the “2009 Incentive Plan”), the Verisk 2009 Equity Incentive Plan (the “2009 IncentiveCompany's sharesave plan (“UK Sharesave Plan”), and the ISO 1996 Incentive Plan (the “1996 Incentive Plan”employee stock purchase plan ("ESPP"), while providing flexibility to repurchase additional shares if warranted. This authorization has no expiration date and may be increased, reduced, suspended, or terminated at any time. Shares that are repurchased under the Repurchase Program will be recorded as treasury stock and will be available for future issuance.
In December 2019, March 2020 and June 2020, the Company entered into Accelerated Share Repurchase ("ASR") agreements to repurchase shares of its common stock for an aggregate purchase price of $50.0 million, $75.0 million and $50.0 million with HSBC Bank USA, N.A. and Bank of America, N.A., respectively. The ASR agreements are each accounted as a treasury stock transaction and forward stock purchase agreement indexed to the Company's common stock. The forward stock purchase agreements were each classified as an equity instrument under ASC 815-40,Contracts in Entity's Own Equity ("ASC 815-40") and deemed to have a fair value of zero at the respective effective date. Upon payment of the aggregate purchase price on January 2, 2020, April 1, 2020 and July 1, 2020, the Company received an aggregate delivery of 267,845, 430,477 and 235,018 shares of its common stock at a price of $149.34, $139.38 and $170.20, respectively. Upon the final settlement of the ASR agreements in February 2020, June 2020 and September 2020, the Company received additional shares of 40,901, 61,052 and 41,272, respectively, as determined by the volume weighted average share price of Verisk's common stock during the term of the ASR agreements. The aggregate purchase price was recorded as a reduction to stockholders' equity in the Company's condensed consolidated statements of changes in stockholders' equity for the nine months ended September 30, 2020. These repurchases of 1,076,565 shares for the nine months ended September 30, 2020 resulted in a reduction of outstanding shares used to calculate the weighted average common shares outstanding for basic and diluted earnings per share ("EPS").
During the nine months ended September 30, 2020, the Company repurchased 1,892,187 shares of common stock with an aggregate value of $298.8 million as part of the Repurchase Program, inclusive of the ASR, at a weighted average price of $157.90 per share. The Company utilized cash from operations and borrowings from its Credit Facility to fund these repurchases.
Treasury Stock
As of September 30, 2017,2020, the Company’s treasury stock consisted of 379,486,284381,251,589 shares of common stock.stock, carried at cost. During the nine months ended September 30, 2017,2020, the Company reissued 957,342transferred 1,482,072 shares of common stock from the treasury shares at a weighted average treasury stock price of $8.07$10.61 per share.
Earnings Per Share (“EPS”)
Basic EPS is computed by dividing income from continuing operations, income from discontinued operations and net income respectively, by the weighted average number of common shares outstanding during the period. The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding, using the treasury stock method, if the dilutive potential common shares, including vested and nonvested stock options, nonvested restricted stock awards, nonvested restricted stock units, nonvested performance awards consisting of performance share units (“PSU”), and nonvested restricteddeferred stock units, had been issued.
The following is a reconciliationpresentation of the numerators and denominators of the basic and diluted EPS computations for the three and nine months ended September 30, 2017 2020 and 2016:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Numerator used in basic and diluted EPS: | |||||||||||||||
| Income from continuing operations | $ | 120.7 | $ | 127.6 | $ | 350.5 | $ | 344.0 | |||||||
| Income from discontinued operations (Note 5) | — | — | — | 137.9 | |||||||||||
| Net income | $ | 120.7 | $ | 127.6 | $ | 350.5 | $ | 481.9 | |||||||
| Denominator: | |||||||||||||||
| Weighted average number of common shares used in basic EPS | 164,577,575 | 168,874,129 | 165,314,267 | 168,541,399 | |||||||||||
| Effect of dilutive shares: | |||||||||||||||
| Potential common shares issuable from stock options and stock awards | 3,379,483 | 2,911,771 | 3,493,138 | 2,953,790 | |||||||||||
| Weighted average number of common shares and dilutive potential common shares used in diluted EPS | 167,957,058 | 171,785,900 | 168,807,405 | 171,495,189 | |||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Numerator used in basic and diluted EPS: | ||||||||||||||||
Net income | $ | 185.8 | $ | 32.9 | $ | 536.5 | $ | 317.7 | ||||||||
Denominator: | ||||||||||||||||
Weighted average number of common shares used in basic EPS | 162,502,191 | 163,580,563 | 162,589,473 | 163,617,580 | ||||||||||||
Effect of dilutive shares: | ||||||||||||||||
| Potential common shares issuable from stock options and stock awards | 3,229,035 | 3,199,055 | 2,930,426 | 3,056,366 | ||||||||||||
Weighted average number of common shares and dilutive potential common shares used in diluted EPS | 165,731,226 | 166,779,618 | 165,519,899 | 166,673,946 | ||||||||||||
The potential shares of common stock that were excluded from diluted EPS were 2,471,48740,741 and 1,239,406870,606 for the three months ended September 30, 2017 2020 and 2016,2019, and 2,158,723675,324 and 1,890,460606,100 for the nine months ended September 30, 2017 2020 and 2016,2019, respectively, because the effect of including these potential shares was anti-dilutive.
Accumulated Other Comprehensive Losses
The following is a summary of accumulated other comprehensive losses as of September 30, 20172020 and December 31, 2016:
2020 | 2019 | |||||||
| Foreign currency translation adjustment | $ | (457.8 | ) | $ | (400.1 | ) | ||
| Pension and postretirement adjustment, net of tax | (83.1 | ) | (86.8 | ) | ||||
Accumulated other comprehensive losses | $ | (540.9 | ) | $ | (486.9 | ) | ||
| 2017 | 2016 | ||||||
| Foreign currency translation adjustment | $ | (356.5 | ) | $ | (561.4 | ) | |
| Unrealized holding gains on available-for-sale securities, net of tax | 0.5 | 0.3 | |||||
| Pension and postretirement adjustment, net of tax | (87.3 | ) | (89.7 | ) | |||
| Accumulated other comprehensive losses | $ | (443.3 | ) | $ | (650.8 | ) | |
The before tax and after tax amounts of other comprehensive income (loss) for the three and nine months ended September 30, 2017 2020 and 20162019 are summarized below:
| Before Tax | Tax (Expense) Benefit | After Tax | |||||||||
| For the Three Months Ended September 30, 2017 | |||||||||||
| Foreign currency translation adjustment | $ | 82.2 | $ | — | $ | 82.2 | |||||
| Pension and postretirement adjustment before reclassifications | 2.4 | (0.7 | ) | 1.7 | |||||||
| Amortization of net actuarial loss and prior service benefit reclassified from accumulated other comprehensive losses (2) | (1.2 | ) | 0.4 | (0.8 | ) | ||||||
| Pension and postretirement adjustment | 1.2 | (0.3 | ) | 0.9 | |||||||
| Total other comprehensive gain | $ | 83.4 | $ | (0.3 | ) | $ | 83.1 | ||||
| For the Three Months Ended September 30, 2016 | |||||||||||
| Foreign currency translation adjustment | $ | (62.1 | ) | $ | — | $ | (62.1 | ) | |||
| Unrealized holding gain on available-for-sale securities before reclassifications | 0.7 | (0.3 | ) | 0.4 | |||||||
| Amount reclassified from accumulated other comprehensive losses (1) | (0.6 | ) | 0.3 | (0.3 | ) | ||||||
| Unrealized holding gain on available-for-sale securities | 0.1 | — | 0.1 | ||||||||
| Pension and postretirement adjustment before reclassifications | 1.8 | (1.0 | ) | 0.8 | |||||||
| Amortization of net actuarial loss and prior service benefit reclassified from accumulated other comprehensive losses (2) | (0.9 | ) | 0.3 | (0.6 | ) | ||||||
| Pension and postretirement adjustment | 0.9 | (0.7 | ) | 0.2 | |||||||
| Total other comprehensive loss | $ | (61.1 | ) | $ | (0.7 | ) | $ | (61.8 | ) | ||
| Before Tax | Tax (Expense) Benefit | After Tax | |||||||||
| For the Nine Months Ended September 30, 2017 | |||||||||||
| Foreign currency translation adjustment | $ | 204.9 | $ | — | $ | 204.9 | |||||
| Unrealized holding gain on available-for-sale securities before reclassifications | 0.3 | (0.1 | ) | 0.2 | |||||||
| Unrealized holding gain on available-for-sale securities | 0.3 | (0.1 | ) | 0.2 | |||||||
| Pension and postretirement adjustment before reclassifications | 7.4 | (2.7 | ) | 4.7 | |||||||
| Amortization of net actuarial loss and prior service benefit reclassified from accumulated other comprehensive losses (2) | (3.7 | ) | 1.4 | (2.3 | ) | ||||||
| Pension and postretirement adjustment | 3.7 | (1.3 | ) | 2.4 | |||||||
| Total other comprehensive gain | $ | 208.9 | $ | (1.4 | ) | $ | 207.5 | ||||
| For the Nine Months Ended September 30, 2016 | |||||||||||
| Foreign currency translation adjustment | $ | (278.6 | ) | $ | — | $ | (278.6 | ) | |||
| Unrealized holding gain on available-for-sale securities before reclassifications | 0.8 | (0.3 | ) | 0.5 | |||||||
| Amount reclassified from accumulated other comprehensive losses (1) | (0.3 | ) | 0.1 | (0.2 | ) | ||||||
| Unrealized holding gain on available-for-sale securities | 0.5 | (0.2 | ) | 0.3 | |||||||
| Pension and postretirement adjustment before reclassifications | 5.4 | (2.3 | ) | 3.1 | |||||||
| Amortization of net actuarial loss and prior service benefit reclassified from accumulated other comprehensive losses (2) | (2.7 | ) | 1.0 | (1.7 | ) | ||||||
| Pension and postretirement adjustment | 2.7 | (1.3 | ) | 1.4 | |||||||
| Total other comprehensive loss | $ | (275.4 | ) | $ | (1.5 | ) | $ | (276.9 | ) | ||
Before Tax | Tax (Expense) Benefit | After Tax | ||||||||||
For the Three Months Ended September 30, 2020 | ||||||||||||
| Foreign currency translation adjustment | $ | 115.0 | $ | 0 | $ | 115.0 | ||||||
| Pension and postretirement adjustment before reclassifications | 3.5 | (0.8 | ) | 2.7 | ||||||||
| Amortization of net actuarial loss and prior service benefit reclassified from accumulated other comprehensive losses (1) | (1.8 | ) | 0.4 | (1.4 | ) | |||||||
| Pension and postretirement adjustment | 1.7 | (0.4 | ) | 1.3 | ||||||||
| Total other comprehensive income | $ | 116.7 | $ | (0.4 | ) | $ | 116.3 | |||||
For the Three Months Ended September 30, 2019 | ||||||||||||
Foreign currency translation adjustment | $ | (87.3 | ) | $ | 0 | $ | (87.3 | ) | ||||
Pension and postretirement adjustment before reclassifications | 2.0 | (0.3 | ) | 1.7 | ||||||||
Amortization of net actuarial loss and prior service benefit reclassified from accumulated other comprehensive losses (1) | (0.8 | ) | 0.2 | (0.6 | ) | |||||||
Pension and postretirement adjustment | 1.2 | (0.1 | ) | 1.1 | ||||||||
Total other comprehensive loss | $ | (86.1 | ) | $ | (0.1 | ) | $ | (86.2 | ) | |||
Before Tax | Tax (Expense) Benefit | After Tax | ||||||||||
For the Nine Months Ended September 30, 2020 | ||||||||||||
| Foreign currency translation adjustment | $ | (57.7 | ) | $ | 0 | $ | (57.7 | ) | ||||
| Pension and postretirement adjustment before reclassifications | 9.7 | (2.3 | ) | 7.4 | ||||||||
| Amortization of net actuarial loss and prior service benefit reclassified from accumulated other comprehensive losses (1) | (4.9 | ) | 1.2 | (3.7 | ) | |||||||
Pension and postretirement adjustment | 4.8 | (1.1 | ) | 3.7 | ||||||||
Total other comprehensive loss | $ | (52.9 | ) | $ | (1.1 | ) | $ | (54.0 | ) | |||
For the Nine Months Ended September 30, 2019 | ||||||||||||
Foreign currency translation adjustment | $ | (89.7 | ) | $ | 0 | $ | (89.7 | ) | ||||
Pension and postretirement adjustment before reclassifications | 7.7 | (1.6 | ) | 6.1 | ||||||||
Amortization of net actuarial loss and prior service benefit reclassified from accumulated other comprehensive losses (1) | (3.8 | ) | 0.9 | (2.9 | ) | |||||||
Pension and postretirement adjustment | 3.9 | (0.7 | ) | 3.2 | ||||||||
Total other comprehensive loss | $ | (85.8 | ) | $ | (0.7 | ) | $ | (86.5 | ) | |||
_______________
(1) | |
These accumulated other comprehensive loss components, before tax, are included under “Cost of revenues” and “Selling, general and administrative” in the accompanying condensed consolidated statements of operations. These components are also included in the computation of net periodic (benefit) cost (see Note |
All of the Company’s outstanding stock options, and restricted stock awards, deferred stock units, and PSUs are covered under the 2013 Incentive Plan, 2009 Incentive Plan or the 19962009 Incentive Plan. Awards under the 2013 Incentive Plan may include one or more of the following types: (i) stock options (both nonqualified and incentive stock options), (ii) stock appreciation rights, (iii) restricted stock, (iv) restricted stock units, (v) performance awards, (vi) other share basedshare-based awards, and (vii) cash. Employees, directors and consultants are eligible for awards under the 2013 Incentive Plan. The Company issuedtransferred common stock under these plans from the Company’s treasury shares. As of September 30, 2017, there2020, there were 6,798,916 3,099,195shares of common stock reserved and
The Company grantedgrants equity awards to key employees of the Company. The nonqualified stock options have an exercise price equal to the adjusted closing price of the Company’s common stock on the grant date, with a ten-yearten-year contractual term. The fair value of the restricted stock is determined using the closing price of the Company’s common stock on the grant date. The restricted stock is not assignable or transferable until it becomes vested. PSUs vest at the end of a three-year performance period, subject to the recipient’s continued service. Each PSU represents the right to receive 1 share of Verisk common stock and the ultimate realization is based on the Company’s achievement of certain market performance criteria and may range from 0% to 200% of the recipient’s target levels of 100% established on the grant date. The fair value of PSUs is determined on the grant date using the Monte Carlo Simulation model. The Company recognizes the expense of the equity awards ratably over the vesting period. period, which could be up to four years.
On January 15, 2020, the Company granted 882,749 stock options, 148,658 shares of restricted stock, and 50,736 performance share units to key employees. The 882,749 stock options and 141,725 shares of restricted stock have a graded service vesting period of four years, while 6,933 shares of restricted stock have a four-year cliff vesting period, and the 50,736 performance share units have a three-year performance period, subject to recipients' continued service. On July 1, 2020, the Company granted 4,080 shares of common stock, 3,570 non-qualified stock options that were immediately vested, 12,090 non-qualified stock options with a one-year service period that vest ratably over twelve months, and 7,180 deferred stock units to the Directors of the Company.
A summary of the equity awards granted forstatus of the nine months ended stock options, restricted stock, and PSUs awarded under the 2013 Incentive Plan as of December 31, 2019 and September 30, 2017 is2020 and changes during the interim period are presented below.
| Grant Date | Service Vesting Period | Stock Options | Restricted Stock | Common Stock | |||||||
| January 1 to March 31, 2017 | Four-year graded vesting | 2,669 | 525 | — | |||||||
| April 1, 2017 | Four-year graded vesting | 1,300,007 | 248,489 | — | |||||||
| April 1, 2017 | Two-year graded vesting | 47,030 | 11,272 | — | |||||||
| May 30, 2017 | Not applicable | — | — | 372 | |||||||
| July 1, 2017 | One-year graded vesting | 75,133 | 10,308 | — | |||||||
| July 1, 2017 | Not applicable | — | 1,304 | 3,201 | |||||||
| July 1 to September 30, 2017 | Four-year graded vesting | 5,240 | 1,078 | — | |||||||
| 1,430,079 | 272,976 | 3,573 | |||||||||
Stock Option | Restricted Stock | PSU | |||||||||||||||||||||||||||
Number of Options | Weighted Average Exercise Price | Aggregate Intrinsic Value | Number of Shares | Weighted Average Grant Date Fair Value Per Share | Number of Shares | Weighted Average Grant Date Fair Value Per Share | |||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||
Outstanding at December 31, 2019 | 6,432,814 | $ | 79.51 | $ | 449.2 | 428,729 | $ | 107.96 | 93,960 | $ | 158.50 | ||||||||||||||||||
Granted | 924,810 | $ | 158.94 | 159,328 | $ | 159.30 | 50,736 | $ | 192.93 | ||||||||||||||||||||
Dividend reinvestment | 0 | $ | 0 | 0 | $ | 0 | 713 | N/A | |||||||||||||||||||||
Exercised or lapsed | (1,308,469 | ) | $ | 54.86 | $ | 148.4 | (169,101 | ) | $ | 99.91 | 0 | ||||||||||||||||||
Canceled, expired or forfeited | (114,597 | ) | $ | 123.00 | (20,341 | ) | $ | 121.60 | 0 | ||||||||||||||||||||
Outstanding at September 30, 2020 | 5,934,558 | $ | 96.48 | $ | 527.2 | 398,615 | $ | 130.77 | 145,409 | $ | 170.75 | ||||||||||||||||||
Exercisable at September 30, 2020 | 3,799,648 | $ | 75.69 | $ | 416.5 | ||||||||||||||||||||||||
Exercisable at December 31, 2019 | 4,175,855 | $ | 65.05 | $ | 352.0 | ||||||||||||||||||||||||
Nonvested at September 30, 2020 | 2,134,910 | 398,615 | 145,409 | ||||||||||||||||||||||||||
Expected to vest at September 30, 2020 | 1,880,444 | 351,554 | 269,001 | (1) | |||||||||||||||||||||||||
(1) | Includes estimated performance achievement |
The fair value of the stock options granted for the nine months ended September 30, 2017 and 2016 was estimated using a Black-Scholes valuation model that uses the weighted average assumptions noted in the following table:
| 2017 | 2016 | ||||||
| Option pricing model | Black-Scholes | Black-Scholes | |||||
| Expected volatility | 18.72 | % | 20.27 | % | |||
| Risk-free interest rate | 1.82 | % | 1.14 | % | |||
| Expected term in years | 4.5 | 4.5 | |||||
| Dividend yield | — | % | — | % | |||
| Weighted average grant date fair value per stock option | $ | 15.71 | $ | 15.34 | |||
2020 | 2019 | |||||||
Option pricing model | Black-Scholes | Black-Scholes | ||||||
| Expected volatility | 18.41 | % | 18.76 | % | ||||
| Risk-free interest rate | 1.53 | % | 2.27 | % | ||||
| Expected term in years | 4.3 | 4.4 | ||||||
| Dividend yield | 0.71 | % | 0.80 | % | ||||
| Weighted average grant date fair value per stock option | $25.77 | $24.09 | ||||||
The expected term for the stock options granted was estimated based on studies of historical experience and projected exercise behavior. However, for certain awards granted, for which no historical exercise pattern exists, the expected term was estimated using the simplified method. The risk-free interest rate is based on the yield of U.S. Treasury zero coupon securities with a maturity equal to the expected term of the equity award. The volatility factor is calculated using historical daily closing prices over the most recent period that is commensurate with the expected term of the stock option award.awards. The expected dividend yield was based on the Company’s expected annual dividend rate on the date of grant.
| Number of Options | Weighted Average Exercise Price | Aggregate Intrinsic Value | ||||||||
| Outstanding at December 31, 2016 | 8,770,917 | $ | 46.67 | $ | 302.6 | |||||
| Granted | 1,430,079 | $ | 81.32 | |||||||
| Exercised | (773,206 | ) | $ | 37.24 | $ | 35.0 | ||||
| Cancelled or expired | (156,963 | ) | $ | 76.40 | ||||||
| Outstanding at September 30, 2017 | 9,270,827 | $ | 52.29 | $ | 286.4 | |||||
| Exercisable at September 30, 2017 | 6,170,584 | $ | 41.08 | $ | 259.8 | |||||
| Exercisable at December 31, 2016 | 6,148,349 | $ | 35.35 | $ | 281.7 | |||||
Intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the quotedadjusted closing price of Verisk common stock as of the reporting date. The Company adopted ASU No. 2016-09 prospectively on January 1, 2017 and excessExcess tax benefits from exercised stock options were recorded as income tax benefit in the condensed consolidated
For the nine months ended September 30, 2020, there was $94.3 million of total unrecognized compensation costs, exclusive of the impact of vesting upon retirement eligibility, related to nonvested stock-based compensation arrangements granted under the 2013 Incentive Plans. That cost is expected to be recognized over a weighted average period of 2.5 years. The total grant date fair value of options vested was $15.2 million and $13.0 million during the nine months ended September 30, 2020 and 2019, respectively. The total grant date fair value of restricted stock vested during the nine months ended September 30, 2020 and 2019 was $17.1 million and $15.3 million, respectively. The total grant date fair value of PSUs vested during the nine months ended September 30, 2020 and 2019 was $6.2 million and $3.0 million, respectively.
The Company’s UK Sharesave Plan offers qualifying employees in the United Kingdom the opportunity to own shares of the Company’s common stock. Employees who elect to participate are granted stock options, of which the exercise price is equal to the adoptionadjusted closing price of ASU No. 2016-09, for the Company’s common stock on the grant date discounted by 5%, and enter into a savings contract, the proceeds of which are then used to exercise the options upon the three-year maturity of the savings contract. During the nine months ended September 30, 2016,2020 and 2019, the Company recorded excess tax benefitsgranted 8,174 and 18,713 stock options under the UK Sharesave Plan. As of $18.4 million in "Additional paid-in capital" in the accompanying condensed consolidated balance sheets. Stock based compensation expense for the nine months ended September 30, 20172020, there were 453,866 shares of common stock reserved and 2016 was $24.2 million and $23.8 million, respectively.
| Number of Shares | Weighted Average Grant Date Fair Value Per Share | |||||
| Outstanding at December 31, 2016 | 537,667 | $ | 73.34 | |||
| Granted | 272,976 | $ | 81.29 | |||
| Vested | (193,239 | ) | $ | 70.14 | ||
| Forfeited | (28,572 | ) | $ | 76.87 | ||
| Outstanding at September 30, 2017 | 588,832 | $ | 77.83 | |||
The Company’s employee stock purchase plan (“ESPP”)ESPP offers eligible employees the opportunity to purchase shares of the Company’s common stock at a discount of its fair market value at the time of purchase. During the nine months ended September 30, 2017 2020 and 2016,2019, the CompanyCompany issued 23,391 25,312 and 23,168 shares23,321 shares of common stock at a weighted discounted priceprice of $78.77$155.14 and $76.64$138.02 for the ESPP, respectively.
The Company maintainedmaintains a frozen qualified defined benefit pension plan for certain of its employees through membership in the Pension Plan for Insurance Organizations (the “Pension Plan”), a multiple-employer trust. The Company has appliedalso applies a cash balance formula to determine future benefits. Under the cash balance formula, each participant has an account, which is credited annually based on the interest earned on the previous year-end cash balance. The Company also has a frozen non-qualified supplemental cash balance plan (“SERP”) for certain employees. The SERP is funded from the general assets of the Company.
The Company also provides certain healthcare and life insurance benefits to certain qualifying active and retired employees. The Postretirement Health and Life Insurance Plan (the “Postretirement Plan”), which has been frozen, is contributory, requiring participants to pay a stated percentage of the premium for coverage. The components of net periodic (benefit) cost for the three and nine months ended September 30, are summarized below:
| Pension Plan and SERP | Postretirement Plan | ||||||||||||||
| For the Three Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Interest cost | $ | 4.3 | $ | 4.9 | $ | 0.1 | $ | 0.1 | |||||||
| Expected return on plan assets | (7.8 | ) | (7.9 | ) | (0.1 | ) | (0.1 | ) | |||||||
| Amortization of net actuarial loss | 1.1 | 0.9 | 0.1 | — | |||||||||||
| Net periodic (benefit) cost | $ | (2.4 | ) | $ | (2.1 | ) | $ | 0.1 | $ | — | |||||
| Employer contributions, net | $ | 0.3 | $ | 0.3 | $ | (0.2 | ) | $ | 0.3 | ||||||
| For the Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Interest cost | $ | 12.9 | $ | 14.5 | $ | 0.3 | $ | 0.3 | |||||||
| Expected return on plan assets | (23.3 | ) | (23.8 | ) | (0.3 | ) | (0.4 | ) | |||||||
| Amortization of prior service cost | 0.1 | — | (0.1 | ) | (0.1 | ) | |||||||||
| Amortization of net actuarial loss | 3.4 | 2.5 | 0.3 | 0.3 | |||||||||||
| Net periodic (benefit) cost | $ | (6.9 | ) | $ | (6.8 | ) | $ | 0.2 | $ | 0.1 | |||||
| Employer contributions, net | $ | 0.8 | $ | 0.8 | $ | 0.4 | $ | 0.5 | |||||||
Pension Plan and SERP | Postretirement Plan | |||||||||||||||
For the Three Months Ended September 30, | ||||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
| Interest cost | $ | 2.9 | $ | 3.4 | $ | 0 | $ | 0 | ||||||||
| Expected return on plan assets | (7.9 | ) | (7.1 | ) | (0.1 | ) | 0 | |||||||||
| Amortization of net actuarial loss | 1.7 | 0.7 | 0.1 | 0.1 | ||||||||||||
Net periodic (benefit) cost | $ | (3.3 | ) | $ | (3.0 | ) | $ | 0 | $ | 0.1 | ||||||
| Employer contributions, net | $ | 0.2 | $ | 0.2 | $ | 0.1 | $ | (0.1 | ) | |||||||
Pension Plan and SERP | Postretirement Plan | |||||||||||||||
For the Nine Months Ended September 30, | ||||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
| Interest cost | $ | 9.8 | $ | 11.8 | $ | 0.1 | $ | 0.2 | ||||||||
| Expected return on plan assets | (22.3 | ) | (22.6 | ) | (0.2 | ) | (0.1 | ) | ||||||||
| Amortization of prior service cost (credit) | 0.1 | 0.1 | (0.1 | ) | (0.1 | ) | ||||||||||
| Amortization of net actuarial loss | 4.6 | 3.5 | 0.3 | 0.3 | ||||||||||||
Net periodic (benefit) cost | $ | (7.8 | ) | $ | (7.2 | ) | $ | 0.1 | $ | 0.3 | ||||||
| Employer contributions, net | $ | 0.6 | $ | 0.6 | $ | 0.9 | $ | (0.4 | ) | |||||||
The expected contributions to the Pension Plan, SERP and Postretirement Plan for the year ending December 31, 20172020 are consistent with the amounts previously disclosed as of December 31, 2016.2019.
ASC 280-10,
Each of the reportable segments, Insurance, Energy and Specialized Markets, and Financial Services has a portion of its customers use to analyzerevenue from more than one of the key processes in managing risk: ‘predictionthree revenue types described within the Company's revenue recognition policy. Below is the overview of loss’, ‘detection and prevention of fraud’ and ‘quantification of loss’. The Company’s combination of algorithms and analytic methods incorporates its proprietary data to generate solutions. In most cases, the Company’s customers integrate the solutions into their models, formulas or underwriting criteria in order to predict potential loss events, such as hurricanes and earthquakes claims. The Company develops catastrophe and extreme event models and offers solutions covering natural and man-made risks, including acts of terrorism. The Company also develops solutions that allow customers to quantify costs after loss events occur. Fraud solutions include data on claim histories, analysis of claims to find emerging patterns of fraud, and identification of suspicious claims in the insurance sectors. The Company offers services and a suite of solutions to a client base that includes credit and debit card issuers, retail bank and other consumer financial services providers, payment processors, insurance companies and other industry stakeholders. The Company further leverages predictive models and proprietary data to advise customers to make asset investment and portfolio allocation decisions in the global energy market. The Company discloses revenueoffered within this segment based on the industry vertical groupings of insurance, energy and specialized markets, and financial services. On June 1, 2016, the Company sold its healthcare business, Verisk Health, which was part of the Decision Analyticseach reportable segment. Results of operations for the healthcare business are reported as a discontinued operation for the nine months ended September 30, 2016. Refer to Note 5 for more information.
Insurance: The Company is the leading provider of statistical, actuarial and underwriting data for the U.S. P&C insurance industry. The Company’s databases include cleansed and standardized records describing premiums and losses in insurance transactions, casualty and property risk attributes for commercial buildings and their occupants, and fire suppression capabilities of municipalities. The Company uses this data to create policy language and proprietary risk classifications that are industry standards and to generate prospective loss cost estimates used to price insurance policies.
Energy and Specialized Markets: The Company is a leading provider of data analytics via hosted platform for the global energy, chemicals, and metals and mining industries. Its research and consulting solutions focus on exploration strategies and screening, asset development and acquisition, commodity markets, and corporate analysis in the areas of business environment, business improvement, business strategies, commercial advisory, and transaction support. The Company gathers and manages proprietary information, insight, and analysis on oil and gas fields, mines, refineries, and other assets across the interconnected global energy sectors to advise customers in making asset investment and portfolio allocation decisions. The Company also helps businesses and governments better anticipate and manage climate and weather-related risks. The Company's analytical tools measure and observe environmental properties and translate those measurements into actionable information based on customer needs. In addition, the Company provides market and cost intelligence to energy companies to optimize financial results. The Company further offers a suite of data and information services that enable improved compliance with global Environmental Health and Safety requirements related to the safe manufacturing, distribution, transportation, usage, and disposal of chemicals and products. The Company’s energy business, environmental health and safety services, and weather risk solutions are included in this segment.
Financial Services: The Company maintains a bank account consortia to provide competitive benchmarking, decisioning algorithms, business intelligence, and customized analytic services that help financial institutions, payment networks and processors, alternative lenders, regulators, and merchants make better strategy, marketing, and risk decisions. Customers apply the Company's solutions in the areas of tailored data management and media effectiveness that include business intelligence platforms, profile views, mobile data solutions, enterprise database services, and fraud risk scoring algorithms for marketing, fraud, and risk mitigation. In addition, the Company's bankruptcy management solutions assist creditors, debt servicing businesses, and credit services to enhance regulatory compliance by eliminating stay violation and portfolio valuation risk.
The three aforementioned operating segments represent the segments for which discrete financial information is available and upon which operating results are regularly evaluated by the CODM in order to assess performance and allocate resources. The Company uses EBITDA as the profitability measure for making decisions regarding ongoing operations. EBITDA is net income before interest expense, provision for income taxes, and depreciation and amortization of fixed and intangible assets. EBITDA is the measure of operating results used to assess corporate performance and optimal utilization of debt and acquisitions. Operating expenses consist of direct and indirect costs principally related to personnel, facilities, software license fees, consulting, travel, and third-partythird-party information services. Indirect costs are generally allocated to the segments using fixed rates established by management based upon estimated expense contribution levels and other assumptions that management considers reasonable. The Company does not allocate interest expense and provision for income taxes, since these items are not considered in evaluating the segment’s overall operating performance. In addition, the CODM does not evaluate the financial performance of each segment based on assets. On a geographic basis,See Note 3. Revenues for information on disaggregated revenues from countries outsideby type of the U.S. accounted for 21.3%service and 22.0% of the Company's consolidated revenues for the nine months ended September 30, 2017 and 2016, respectively. No individual country outside of the U.S. accounted for 5.0% or more of the Company's consolidated revenues for the nine months ended September 30, 2017 or 2016.
The following table providestables provide the Company’s revenue and EBITDA by reportable segment for the three and nine months ended September 30, 2017 2020 and 2016,2019, and the reconciliation of EBITDA to operating income before income taxes as shown in the accompanying condensed consolidated statements of operations:
For the Three Months Ended | ||||||||||||||||||||||||||||||||
September 30, 2020 | September 30, 2019 | |||||||||||||||||||||||||||||||
Insurance | Energy and Specialized Markets | Financial Services | Total | Insurance | Energy and Specialized Markets | Financial Services | Total | |||||||||||||||||||||||||
Revenues | $ | 498.6 | $ | 163.8 | $ | 40.3 | $ | 702.7 | $ | 469.0 | $ | 140.3 | $ | 43.4 | $ | 652.7 | ||||||||||||||||
Expenses: | ||||||||||||||||||||||||||||||||
| Cost of revenues (exclusive of items shown separately below) | (151.0 | ) | (64.5 | ) | (24.5 | ) | (240.0 | ) | (160.7 | ) | (57.9 | ) | (24.3 | ) | (242.9 | ) | ||||||||||||||||
| Selling, general and administrative | (55.8 | ) | (36.2 | ) | (4.4 | ) | (96.4 | ) | (196.7 | ) | (53.5 | ) | (4.8 | ) | (255.0 | ) | ||||||||||||||||
| Other operating (loss) income | — | — | — | — | — | — | (6.2 | ) | (6.2 | ) | ||||||||||||||||||||||
| Investment (loss) income and others, net | (0.3 | ) | (0.1 | ) | 0.3 | (0.1 | ) | (0.5 | ) | 1.2 | 0 | 0.7 | ||||||||||||||||||||
EBITDA | $ | 291.5 | $ | 63.0 | $ | 11.7 | 366.2 | $ | 111.1 | $ | 30.1 | $ | 8.1 | 149.3 | ||||||||||||||||||
Depreciation and amortization of fixed assets | (49.4 | ) | (45.8 | ) | ||||||||||||||||||||||||||||
Amortization of intangible assets | (41.5 | ) | (33.3 | ) | ||||||||||||||||||||||||||||
Interest expense | (35.3 | ) | (31.3 | ) | ||||||||||||||||||||||||||||
Income before income taxes | $ | 240.0 | $ | 38.9 | ||||||||||||||||||||||||||||
For the Nine Months Ended | ||||||||||||||||||||||||||||||||
September 30, 2020 | September 30, 2019 | |||||||||||||||||||||||||||||||
Insurance | Energy and Specialized Markets | Financial Services | Total | Insurance | Energy and Specialized Markets | Financial Services | Total | |||||||||||||||||||||||||
Revenues | $ | 1,474.4 | $ | 478.2 | $ | 118.6 | $ | 2,071.2 | $ | 1,393.5 | $ | 406.1 | $ | 130.7 | $ | 1,930.3 | ||||||||||||||||
Expenses: | ||||||||||||||||||||||||||||||||
| Cost of revenues (exclusive of items shown separately below) | (461.7 | ) | (200.9 | ) | (70.8 | ) | (733.4 | ) | (474.0 | ) | (169.8 | ) | (73.2 | ) | (717.0 | ) | ||||||||||||||||
| Selling, general and administrative | (180.8 | ) | (110.5 | ) | (13.5 | ) | (304.8 | ) | (333.8 | ) | (129.2 | ) | (15.7 | ) | (478.7 | ) | ||||||||||||||||
| Other operating (loss) income | 15.9 | — | 3.5 | 19.4 | — | — | (6.2 | ) | (6.2 | ) | ||||||||||||||||||||||
| Investment (loss) income and others, net | (1.6 | ) | (1.3 | ) | (0.2 | ) | (3.1 | ) | (0.6 | ) | 0.5 | (0.2 | ) | (0.3 | ) | |||||||||||||||||
EBITDA | $ | 846.2 | $ | 165.5 | $ | 37.6 | 1,049.3 | $ | 585.1 | $ | 107.6 | $ | 35.4 | 728.1 | ||||||||||||||||||
Depreciation and amortization of fixed assets | (141.3 | ) | (138.0 | ) | ||||||||||||||||||||||||||||
Amortization of intangible assets | (123.6 | ) | (100.1 | ) | ||||||||||||||||||||||||||||
Interest expense | (102.9 | ) | (93.7 | ) | ||||||||||||||||||||||||||||
Income before income taxes | $ | 681.5 | $ | 396.3 | ||||||||||||||||||||||||||||
| For the Three Months Ended | |||||||||||||||||||||||
| September 30, 2017 | September 30, 2016 | ||||||||||||||||||||||
| Decision Analytics | Risk Assessment | Total | Decision Analytics | Risk Assessment | Total | ||||||||||||||||||
| Revenues | $ | 355.9 | $ | 193.2 | $ | 549.1 | $ | 317.3 | $ | 180.8 | $ | 498.1 | |||||||||||
| Expenses: | |||||||||||||||||||||||
| Cost of revenues (exclusive of items shown separately below) | (141.7 | ) | (56.8 | ) | (198.5 | ) | (117.6 | ) | (52.1 | ) | (169.7 | ) | |||||||||||
| Selling, general and administrative | (60.4 | ) | (20.5 | ) | (80.9 | ) | (55.4 | ) | (22.4 | ) | (77.8 | ) | |||||||||||
| Investment income and others, net | 2.5 | 0.1 | 2.6 | 0.6 | 1.5 | 2.1 | |||||||||||||||||
| EBITDA | 156.3 | 116.0 | 272.3 | 144.9 | 107.8 | 252.7 | |||||||||||||||||
| Depreciation and amortization of fixed assets | (26.2 | ) | (7.6 | ) | (33.8 | ) | (22.6 | ) | (6.9 | ) | (29.5 | ) | |||||||||||
| Amortization of intangible assets | (26.6 | ) | (0.9 | ) | (27.5 | ) | (22.5 | ) | (0.2 | ) | (22.7 | ) | |||||||||||
| Less: Investment income and others, net | (2.5 | ) | (0.1 | ) | (2.6 | ) | (0.6 | ) | (1.5 | ) | (2.1 | ) | |||||||||||
| Operating income | $ | 101.0 | $ | 107.4 | 208.4 | $ | 99.2 | $ | 99.2 | 198.4 | |||||||||||||
| Investment income and others, net | 2.6 | 2.1 | |||||||||||||||||||||
| Interest expense | (30.3 | ) | (28.1 | ) | |||||||||||||||||||
| Income from continuing operations before income taxes | $ | 180.7 | $ | 172.4 | |||||||||||||||||||
| For the Nine Months Ended | |||||||||||||||||||||||
| September 30, 2017 | September 30, 2016 | ||||||||||||||||||||||
| Decision Analytics | Risk Assessment | Total | Decision Analytics | Risk Assessment | Total | ||||||||||||||||||
| Revenues | $ | 999.7 | $ | 575.2 | $ | 1,574.9 | $ | 947.4 | $ | 541.7 | $ | 1,489.1 | |||||||||||
| Expenses: | |||||||||||||||||||||||
| Cost of revenues (exclusive of items shown separately below) | (405.3 | ) | (169.8 | ) | (575.1 | ) | (362.6 | ) | (158.8 | ) | (521.4 | ) | |||||||||||
| Selling, general and administrative | (174.2 | ) | (61.4 | ) | (235.6 | ) | (161.8 | ) | (62.6 | ) | (224.4 | ) | |||||||||||
| Investment income and others, net | 8.0 | (0.1 | ) | 7.9 | 1.6 | 1.4 | 3.0 | ||||||||||||||||
| EBITDA from discontinued operations (including the gain on sale) | — | — | — | 269.4 | — | 269.4 | |||||||||||||||||
| EBITDA | 428.2 | 343.9 | 772.1 | 694.0 | 321.7 | 1,015.7 | |||||||||||||||||
| Depreciation and amortization of fixed assets | (76.7 | ) | (22.7 | ) | (99.4 | ) | (69.9 | ) | (20.8 | ) | (90.7 | ) | |||||||||||
| Amortization of intangible assets | (71.0 | ) | (2.6 | ) | (73.6 | ) | (70.0 | ) | (0.4 | ) | (70.4 | ) | |||||||||||
| Less: Investment income and others, net | (8.0 | ) | 0.1 | (7.9 | ) | (1.6 | ) | (1.4 | ) | (3.0 | ) | ||||||||||||
| EBITDA from discontinued operations (including the gain on sale) | — | — | — | (269.4 | ) | — | (269.4 | ) | |||||||||||||||
| Operating income | $ | 272.5 | $ | 318.7 | 591.2 | $ | 283.1 | $ | 299.1 | 582.2 | |||||||||||||
| Investment income and others, net | 7.9 | 3.0 | |||||||||||||||||||||
| Interest expense | (87.3 | ) | (91.7 | ) | |||||||||||||||||||
| Income from continuing operations before income taxes | $ | 511.8 | $ | 493.5 | |||||||||||||||||||
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Decision Analytics: | |||||||||||||||
| Insurance | $ | 203.9 | $ | 174.4 | $ | 573.5 | $ | 521.4 | |||||||
| Energy and specialized markets | 111.4 | 109.1 | 328.0 | 333.2 | |||||||||||
| Financial services | 40.6 | 33.8 | 98.2 | 92.8 | |||||||||||
| Total Decision Analytics | 355.9 | 317.3 | 999.7 | 947.4 | |||||||||||
| Risk Assessment: | |||||||||||||||
| Industry-standard insurance programs | 149.0 | 138.2 | 442.7 | 414.2 | |||||||||||
| Property-specific rating and underwriting information | 44.2 | 42.6 | 132.5 | 127.5 | |||||||||||
| Total Risk Assessment | 193.2 | 180.8 | 575.2 | 541.7 | |||||||||||
| Total revenues | $ | 549.1 | $ | 498.1 | $ | 1,574.9 | $ | 1,489.1 | |||||||
Long-lived assets by country are provided below:
September 30, 2020 | December 31, 2019 | |||||||
Long-lived assets: | ||||||||
| U.S. | $ | 3,395.3 | $ | 3,162.5 | ||||
| U.K. | 2,574.2 | 2,685.3 | ||||||
| Other countries | 450.4 | 462.5 | ||||||
Total long-lived assets | $ | 6,419.9 | $ | 6,310.3 | ||||
| September 30, 2017 | December 31, 2016 | ||||||
| Long-lived assets: | |||||||
| United States of America | $ | 2,101.9 | $ | 1,754.0 | |||
| United Kingdom | 2,658.7 | 2,102.5 | |||||
| Other countries | 322.9 | 273.8 | |||||
| Total long-lived assets | $ | 5,083.5 | $ | 4,130.3 | |||
The Company considers its stockholders that own more than 5.0% of the outstanding common stock within the class to be related parties as defined within ASC 850,
The Company is a party to legal proceedings with respect to a variety of matters in the ordinary course of business, including the matters described below. With respect to ongoing matters, the Company is unable, at the present time, to determine the ultimate resolution of or provide a reasonable estimate of the range of possible loss attributable to theseongoing matters or the impact they these matters may have on the Company’s results of operations, financial position or cash flows. This is primarily because the matters are generally in early stages and discovery has either not commenced or been completed. Although the Company believes it has strong defenses and intends to vigorously defend these matters,appeal any rulings adverse to the Company, the Company could in the future incur judgments or enter into settlements of claims that could have a material adverse effect on its results of operations, financial position or cash flows.
Xactware Solutions, Inc. Patent Litigation
On October 8, 2015, the Company was served with a summons and complaint in an action titled Eagle View Technologies, Inc. and Pictometry International Group, Inc. v. Xactware Solutions, Inc. and Verisk Analytics, Inc. filed in the United States District Court for the District of New Jersey. The complaint allegesalleged that the Company’s Roof InSight (now known as Geomni Roof), Property InSight product (now known as Geomni Property) and Aerial Sketch productsproduct in combination with the Company's Xactimate product infringe seven patents owned by Eagle View and Pictometry namely, Patent Nos. 8,078,436 (the "436 patent"), 8,170,840 (the "840 patent"), 8,209,152 (the "152 patent"), 8,542,880 (the "880 patent"), 8,818,770 (the "770 patent"), 8,823,732 (the "732 patent"), and 454.8,825,454 (the "454 patent"). On November 30, 2015, plaintiffs filed a First Amended Complaint adding Patent Nos. 9,129,376 (the "376 patent") and 9,135,737 (the "737 patent") to the Patents in Suit.lawsuit. The First Amended Complaint seekssought an entry of judgment by the Court that defendants have and continue to directly infringe and/or indirectly infringe, including by way of inducement, the Patents-in-Suit, permanent injunctive relief, damages, costs and attorney’s fees. On May 17,19, 2017, the District Court so orderedentered a Joint Stipulated Order of Partial Dismissal with Prejudice dismissing all claims or assertions pertaining to Pictometry Patents Nos. the 880 and 732 patents, and certain enumeratedasserted claims or assertions pertaining to Eagle View Patents Nos. of the 436,840,152,770,454,376 and 737 patents (collectively the “Patents in Suit”).
ERISA Litigation
On September 24, 2020, former employees Jillyn Peterson, Gabe Hare, Robert Heynen and Adam Krajewski (“Plaintiffs”), filed suit in the United States District Court, District of New Jersey (No.2:20-cv-13223-CCC-MF) against Defendants Insurance Services Office Inc. (“ISO”), the Plan Administration Committee of Insurance Services Office Inc. and its members, and the Trust Investment Committee of Insurance Services Office Inc. and its members. The class action complaint alleges violations of the Employee Retirement Income Security Act, ERISA. The class is defined as all persons who were participants in or beneficiaries of the ISO 401(k) Savings and Employee Stock Ownership Plan (“Plan”), at any time between September 24, 2014 through the date of judgment. The complaint alleges that all Defendants are fiduciaries with respect to the Plan. Plaintiffs challenge the amount of fees paid by Plan participants to maintain the investment funds in the plan portfolio and the amount of recordkeeper fees paid by participants. Plaintiffs allege that by permitting the payment of excessive fees, the Committee Defendants breached their ERISA duties of prudence and loyalty. Plaintiffs further allege that ISO breached its ERISA duty by failing to monitor the Committee Defendants who they allege committed known breaches of their fiduciary duties. The complaint does not specify damages but alleges the fiduciary breaches cost Plan participants millions of dollars. At this time, it is not possible to reasonably estimate the liability related to this matter.
In September 2020, the Company was servedentered into an additional ASR agreement with a putative class action titled John Weber v. Interthinx, Inc. and Verisk Analytics, Inc. The plaintiff, a former employeeCitibank, N.A. to repurchase shares of its common stock for an aggregate purchase price of $50.0 million. Upon payment of the Company’s former subsidiary Interthinx, Inc. in Missouri, filedaggregate purchase price on October 1,2020, the class action complaint in the United States District Court for the Eastern DistrictCompany received an initial delivery of Missouri on behalf215,855 shares of all review appraisers and individuals holding comparable positions with different titles who were employed by Interthinx for the last three years nationwide and who were not paid overtime wages. The class complaint claims that the review appraiser employees were misclassified as exempt employees and, asits common stock at a result, were denied certain wages and benefits that would have been received if they were properly classified as non-exempt employees. It pleads a Collective Action under section 216(b)price of $185.31 per share, representing approximately $40.0 million of the Fair Labor Standards Act for unpaid overtime and seeks overtime wages, liquidated damages, declaratory relief, interest, costs and attorneys’ fees. On March 11, 2014,aggregate purchase price. Upon the final settlement of the ASR agreement in December 2020, the Company sold 100 percentmay be entitled to receive additional shares of theits common stock of Interthinx, Inc. The parties agreedor, under certain limited circumstances, be required to resolve this matter with the Company’s contribution of a non-material amount in the Class Action Settlement Agreement executed on November 8, 2016. For settlement purposes only, this matter was consolidated with a related action pending in the Los Angeles Superior Court in which the Company is not a party, titled Sager v. Interthinx. On February 21, 2017, the Los Angeles Superior Court approved the settlement at the preliminary approval hearing. The Court held a final approval hearing on August 22, 2017 and issued its Final Order and Judgment Approving the Class Settlement on September 25, 2017.
**************
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion should be read in conjunction with our historical financial statements and the related notes included in our annual report on Form 10-K, or 20162019 10-K, dated and filed with the Securities and Exchange Commission on February 21, 2017.18, 2020. This discussion contains forward-looking statements that involve risks and uncertainties.uncertainties, including the impact of the 2019 novel coronavirus, or COVID-19 pandemic. Our actual results may differ materially from those discussed in or implied by any of the forward-looking statements as a result of various factors, including but not limited to those listed under “Risk Factors” and “Special Note Regarding Forward Looking Statements” in our 2016 10-K.
Verisk Analytics is a leading data analytics provider serving customers in insurance, natural resourcesenergy and specialized markets, and financial services. Using advanced technologies to collect and analyze billions of records, we draw on unique data assets and deep domain expertise to provide innovations that may be integrated into customer workflows. We offer predictive analytics and decision support solutions to customers in rating, underwriting, claims, catastrophe and weather risk, natural resources intelligence, economic forecasting, and many other fields. In the United States, or U.S., and around the world, we help customers protect people, property, and financial assets.
Our customers use our solutions to make better decisions about risk and opportunities with greater efficiency and discipline. We refer to these products and services as solutions due to the integration among our services and the flexibility that enables our customers to purchase components or a comprehensive package. These solutions take various forms, including data, expert insight, statistical models and tailored analytics all designed to allow our customers to make more logical decisions. We believe our solutions for analyzing risk positively impact our customers’ revenues and help them better manage their costs.
We organize our business in twothree segments: Risk AssessmentInsurance, Energy and Decision Analytics.Specialized Markets, and Financial Services. Our Risk AssessmentInsurance segment provides statistical, actuarialunderwriting and underwritingrating, and claims insurance data for the U.S. P&C insurance industry. Our Risk Assessment segmentThis segment's revenues represented approximately 36.5%71% and 72% of our revenues for the nine months ended September 30, 2020 and 36.4% of2019, respectively. Our Energy and Specialized Markets segment provides research and consulting data analytics for the global energy, chemicals, and metals and mining industries. Our Energy and Specialized Markets segment's revenues represented approximately 23% and 21% of our revenues for the nine months ended September 30, 20172020 and 2016,2019, respectively. Our Decision AnalyticsFinancial Services segment provides solutionscompetitive benchmarking, decisioning algorithms, business intelligence, and customized analytic services to our customers within three vertical market-related groupingsfinancial institutions, payment networks and processors, alternative lenders, regulators and merchants. Our Financial Services segment's revenues represented approximately 6% and 7% of insurance, energy and specialized markets, and financial services. Our Decision Analytics segment revenues represented approximately 63.5% and 63.6% of ourour revenues for the nine months ended September 30, 20172020 and 2016,2019, respectively.
COVID-19
Since January 2020, an outbreak of the stock2019 novel coronavirus, or COVID-19, has evolved into a worldwide pandemic. We have modified our operations in line with our business continuity plans due to COVID-19. While our facilities generally remain open, we are making extensive use of the healthcarework-from-home model at this moment. On a daily basis, management is reviewing our operations and there have been to date minimal interruptions in our customer facing operations. Given the digital nature of our business or Verisk Health,and the move toward cloud enablement, we expect to remain operationally stable and fully available to our customers. We are in exchange forcompliance with all financial covenants and have not observed a purchase price that consistedloss of $714.6 millionany significant customers, a significant deterioration in the collectability of cash consideration afterreceivables, a working capital adjustmentsignificant reduction in our liquidity, nor a significant decline in subscription renewal rates.
We have analyzed our solutions and services to assess the impact of $5.4 million,COVID-19 on our revenue streams. We have not identified any material impact stemming from COVID-19 on a subordinated promissory note with a face valuepproximately 85% of $100.0 millionour revenues at this point, as much of these revenues are subscription in nature and an eight year maturity, or the Note, and other contingent consideration. Results of operations subject to long-term contracts. These revenues grew approximately 6% for the healthcare business are reported as a discontinued operation for the three and nine months ended September 30, 2016. See Note 52020.
Of the remaining 15%, we have identified specific solutions and services, largely transactional in nature, that are being impacted by COVID-19. The primary causal factors are lower auto and travel insurance activity, the inability to enter commercial buildings to perform engineering analyses, decreased capital expenditure in the energy sector, and reduced levels of advertising by financial institutions and marketers. The portion of our condensed consolidatedrevenue that is attributable to these solutions has been negatively impacted by COVID-19, and declined approximately 10% for the three months ended September 30, 2020. The deepest impacts were in the categories of travel insurance analytics, auto underwriting and claims analytics in the insurance industry, consulting services in the energy industry, and spend informed analytic solutions in financial statements includedservices. Although we have experienced a decline in this Form 10-Q.revenue attributable to these specific solutions during the last two weeks of March 2020 and through the period ended September 30, 2020, currently we do not anticipate lasting impacts of a material nature to our long-term growth profile. As necessary, all amounts have been retroactively adjusted in all periods presentedthe global outbreak of COVID-19 is still rapidly evolving, management continues to give recognition to this discontinued operation.closely monitor its impact on our business.
Executive Summary
Key Performance Metrics
We believe our business' ability to generategrow recurring revenue and generate positive cash flow is the key indicator of the successful execution of our business strategy. We use year-over-year revenue growth and EBITDA margin as metrics to measure our performance. EBITDA and EBITDA margin are non-GAAP financial measures (See footnote 1 within the Condensed Consolidated Results of Operations section of Item 2.2. Management's Discussion and Analysis of Financial Condition and Results of Operations). The nearest equivalent respective GAAP financial measures are net income and net income margin.
Revenue growth.
We use year-over-year revenue growth as a key performance metric. We assess revenue growth based on our ability to generate increased revenue through increased sales to existing customers, sales to new customers, sales of new or expanded solutions to existing and new customers, and strategic acquisitions of new businesses.EBITDA growth
. We use EBITDA growthEBITDA margin.
We use EBITDA margin as a metric to assess segment performance and scalability of our business. We assess EBITDA margin based on our ability to increase revenues while controlling expense growth.Revenues
We earn revenues through agreements for hosted subscriptions, long-term agreementsadvisory/consulting services, and on afor transactional basis.solutions, recurring and non-recurring. Subscriptions for our solutions are generally paid in advance of rendering services either quarterly or in full upon commencement of the subscription period, which is usually for one year and automatically renewed each year. As a result, the timing of our cash flows generally precedes our recognition of revenues and income and our cash flow from operations tends to be higher in the first quarter as we receive subscription payments. Examples of these arrangements include subscriptions that allow our customers to access our standardized coverage language, our claims fraud database or our actuarial services throughout the subscription period. In general, we experience minimal revenue seasonality within the business. Our long-term agreements are generally for periods of three to five years. We recognize revenue from subscriptions ratably over the term of the subscription and most long-term agreements are recognized ratably over the term of the agreement.
Approximately 90.9% and 90.8%82% of the revenues in our Risk AssessmentInsurance segment for both the nine months ended September 30, 20172020 and 2016, respectively,2019 were derived from hosted subscriptions and long-termthrough agreements (generally one to five years) for our solutions. Our customers in this segment include most of the P&C insurance providers in the U.S. Approximately 75.0%84% and 77.6%78% of the revenues in our Decision AnalyticsEnergy and Specialized Markets segment for the nine months ended September 30, 20172020 and 2016, respectively,2019 were derived from hosted subscriptions with long-term agreements for our solutions, respectively. Our customers in this segment include most of the top 10 global energy providers. Approximately 76% and 72% of the revenues in our Financial Services segment for the nine months ended September 30, 2020 and 2019 were derived from subscriptions andwith long-term agreements for our solutions. Insolutions, respectively. Our customers in this segment include financial institutions, payment networks and processors, alternative lenders, regulators, merchants, and all of the top 30 credit card issuers in North America, the United Kingdom, and Australia.
We also provide advisory/consulting services, which help our customer bases are within the insurance, energycustomers get more value out of our analytics and specialized markets, and financial services verticals.
Operating Costs and Expenses
Personnel expenses are the major component of both our cost of revenues and selling, general and administrative expenses. Personnel expenses, which represented 47.8%approximately 60% and 47.1%53% of our total operating expenses for the nine months ended September 30, 20172020 and 2016,2019, respectively, include salaries, benefits, incentive compensation, equity compensation costs, sales commissions, employment taxes, recruiting costs, and outsourced temporary agency costs.
We allocateassign personnel expenses between two categories, cost of revenues and selling, general and administrative expense, based on the actual costs associated with each employee. We categorize employees who maintain our solutions as cost of revenues, and all other personnel, including executive managers, sales people, marketing, business development, finance, legal, human resources, and administrative services, as selling, general and administrative expenses. A significant portion of our other operating costs, such as facilities and communications, is also either captured within cost of revenues or selling, general and administrative expenses based on the nature of the work being performed.
While we expect to grow our headcount over time to take advantage of our market opportunities, we believe that the economies of scale in our operating model will allow us to grow our personnel expenses at a lower rate than revenues. Historically, our EBITDA margin has improved because we have been able to increase revenues without a proportionate corresponding increase in expenses. However, part of our corporate strategy is to invest in new solutions and new businesses which may offset margin expansion.
Cost of Revenues.
Our cost of revenues consists primarily of personnel expenses. Cost of revenues also includes the expenses associated with the acquisition, disposition and verification of data, the maintenance of our existing solutions and the development and enhancement of our next-generation solutions. Our cost of revenues excludes depreciation and amortization.Selling, General and Administrative Expenses.
Our selling, general and administrative expenses consist primarily of personnel costs. A portion of the otherCondensed Consolidated Results of Operations
| Three Months Ended September 30, | Percentage Change | Nine Months Ended September 30, | Percentage Change | ||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||
| (In millions, except for share and per share data) | |||||||||||||||||||||
| Statement of income data: | |||||||||||||||||||||
| Revenues: | |||||||||||||||||||||
| Decision Analytics revenues | $ | 355.9 | $ | 317.3 | 12.2 | % | $ | 999.7 | $ | 947.4 | 5.5 | % | |||||||||
| Risk Assessment revenues | 193.2 | 180.8 | 6.9 | % | 575.2 | 541.7 | 6.2 | % | |||||||||||||
| Revenues | 549.1 | 498.1 | 10.2 | % | 1,574.9 | 1,489.1 | 5.8 | % | |||||||||||||
| Expenses: | |||||||||||||||||||||
Cost of revenues (exclusive of items shown separately below) | 198.5 | 169.7 | 17.0 | % | 575.1 | 521.4 | 10.3 | % | |||||||||||||
| Selling, general and administrative | 80.9 | 77.8 | 4.0 | % | 235.6 | 224.4 | 5.0 | % | |||||||||||||
| Depreciation and amortization of fixed assets | 33.8 | 29.5 | 14.5 | % | 99.4 | 90.7 | 9.5 | % | |||||||||||||
| Amortization of intangible assets | 27.5 | 22.7 | 21.2 | % | 73.6 | 70.4 | 4.7 | % | |||||||||||||
| Total expenses | 340.7 | 299.7 | 13.7 | % | 983.7 | 906.9 | 8.5 | % | |||||||||||||
| Operating income | 208.4 | 198.4 | 5.0 | % | 591.2 | 582.2 | 1.5 | % | |||||||||||||
| Other income (expense): | |||||||||||||||||||||
| Investment income and others, net | 2.6 | 2.1 | 23.2 | % | 7.9 | 3.0 | 163.2 | % | |||||||||||||
| Interest expense | (30.3 | ) | (28.1 | ) | 7.8 | % | (87.3 | ) | (91.7 | ) | (4.7 | )% | |||||||||
| Total other expense, net | (27.7 | ) | (26.0 | ) | 6.5 | % | (79.4 | ) | (88.7 | ) | (10.4 | )% | |||||||||
| Income before income taxes | 180.7 | 172.4 | 4.8 | % | 511.8 | 493.5 | 3.7 | % | |||||||||||||
| Provision for income taxes | (60.0 | ) | (44.8 | ) | 33.8 | % | (161.3 | ) | (149.5 | ) | 7.9 | % | |||||||||
| Income from continuing operations | 120.7 | 127.6 | (5.4 | )% | 350.5 | 344.0 | 1.9 | % | |||||||||||||
| Discontinued operations | |||||||||||||||||||||
| Income from discontinued operations | — | — | — | % | — | 256.5 | (100.0 | )% | |||||||||||||
| Provision for income taxes | — | — | — | % | — | (118.6 | ) | (100.0 | )% | ||||||||||||
| Income from discontinued operations (2) | — | — | — | % | — | 137.9 | (100.0 | )% | |||||||||||||
| Net Income | $ | 120.7 | $ | 127.6 | (5.4 | )% | $ | 350.5 | $ | 481.9 | (27.3 | )% | |||||||||
| Basic net income per share: | |||||||||||||||||||||
| Income from continuing operations | $ | 0.73 | $ | 0.76 | (3.9 | )% | $ | 2.12 | $ | 2.04 | 3.9 | % | |||||||||
| Income from discontinued operations | — | — | — | % | — | 0.82 | (100.0 | )% | |||||||||||||
| Basic net income per share | $ | 0.73 | $ | 0.76 | (3.9 | )% | $ | 2.12 | $ | 2.86 | (25.9 | )% | |||||||||
| Diluted net income per share: | |||||||||||||||||||||
| Income from continuing operations | $ | 0.72 | $ | 0.74 | (2.7 | )% | $ | 2.08 | $ | 2.01 | 3.5 | % | |||||||||
| Income from discontinued operations | — | — | — | % | — | 0.80 | (100.0 | )% | |||||||||||||
| Diluted net income per share | $ | 0.72 | $ | 0.74 | (2.7 | )% | $ | 2.08 | $ | 2.81 | (26.0 | )% | |||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||
| Basic | 164,577,575 | 168,874,129 | (2.5 | )% | 165,314,267 | 168,541,399 | (1.9 | )% | |||||||||||||
| Diluted | 167,957,058 | 171,785,900 | (2.2 | )% | 168,807,405 | 171,495,189 | (1.6 | )% | |||||||||||||
| The financial operating data below sets forth the information we believe is useful for investors in evaluating our overall financial performance: | |||||||||||||||||||||
| Other data: | |||||||||||||||||||||
| EBITDA (1): | |||||||||||||||||||||
| Decision Analytics EBITDA | $ | 156.3 | $ | 144.9 | 7.8 | % | $ | 428.2 | $ | 694.0 | (38.3 | )% | |||||||||
| Risk Assessment EBITDA | 116.0 | 107.8 | 7.6 | % | 343.9 | 321.7 | 6.9 | % | |||||||||||||
| EBITDA | $ | 272.3 | $ | 252.7 | 7.7 | % | $ | 772.1 | $ | 1,015.7 | (24.0 | )% | |||||||||
| The following is a reconciliation of net income to EBITDA: | |||||||||||||||||||||
| Net income | $ | 120.7 | $ | 127.6 | (5.4 | )% | $ | 350.5 | $ | 481.9 | (27.3 | )% | |||||||||
| Depreciation and amortization of fixed assets and intangible assets from continuing operations | 61.3 | 52.2 | 17.4 | % | 173.0 | 161.1 | 7.4 | % | |||||||||||||
| Interest expense from continuing operations | 30.3 | 28.1 | 7.8 | % | 87.3 | 91.7 | (4.7 | )% | |||||||||||||
| Provision for income taxes from continuing operations | 60.0 | 44.8 | 33.8 | % | 161.3 | 149.5 | 7.9 | % | |||||||||||||
| Depreciation, amortization, interest and provision for income taxes from discontinued operations | — | — | — | % | — | 131.6 | (100.0 | )% | |||||||||||||
| EBITDA | $ | 272.3 | $ | 252.7 | 7.7 | % | $ | 772.1 | $ | 1,015.8 | (24.0 | )% | |||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, | Percentage | September 30, | Percentage | |||||||||||||||||||||
2020 | 2019 | Change | 2020 | 2019 | Change | |||||||||||||||||||
(in millions, except for share and per share data) | ||||||||||||||||||||||||
Statement of income data: | ||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
| Insurance | $ | 498.6 | $ | 469.0 | 6.3 | % | $ | 1,474.4 | $ | 1,393.5 | 5.8 | % | ||||||||||||
| Energy and Specialized Markets | 163.8 | 140.3 | 16.7 | % | 478.2 | 406.1 | 17.8 | % | ||||||||||||||||
| Financial Services | 40.3 | 43.4 | (7.1 | )% | 118.6 | 130.7 | (9.2 | )% | ||||||||||||||||
| Revenues | 702.7 | 652.7 | 7.6 | % | 2,071.2 | 1,930.3 | 7.3 | % | ||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
| Cost of revenues (exclusive of items shown separately below) | 240.0 | 242.9 | (1.2 | )% | 733.4 | 717.0 | 2.3 | % | ||||||||||||||||
| Selling, general and administrative | 96.4 | 255.0 | (62.2 | )% | 304.8 | 478.7 | (36.3 | )% | ||||||||||||||||
| Depreciation and amortization of fixed assets | 49.4 | 45.8 | 7.7 | % | 141.3 | 138.0 | 2.4 | % | ||||||||||||||||
| Amortization of intangible assets | 41.5 | 33.3 | 24.8 | % | 123.6 | 100.1 | 23.4 | % | ||||||||||||||||
| Other operating loss (income) | — | 6.2 | (100.0 | )% | (19.4 | ) | 6.2 | (414.7 | )% | |||||||||||||||
Total operating expenses | 427.3 | 583.2 | (26.7 | )% | 1,283.7 | 1,440.0 | (10.9 | )% | ||||||||||||||||
Operating income | 275.4 | 69.5 | 296.0 | % | 787.5 | 490.3 | 60.6 | % | ||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||
| Investment (loss) income and others, net | (0.1 | ) | 0.7 | (122.7 | )% | (3.1 | ) | (0.3 | ) | 930.3 | % | |||||||||||||
| Interest expense | (35.3 | ) | (31.3 | ) | 13.0 | % | (102.9 | ) | (93.7 | ) | 9.8 | % | ||||||||||||
Total other expense, net | (35.4 | ) | (30.6 | ) | 15.7 | % | (106.0 | ) | (94.0 | ) | 12.7 | % | ||||||||||||
Income before income taxes | 240.0 | 38.9 | 517.2 | % | 681.5 | 396.3 | 72.0 | % | ||||||||||||||||
| Provision for income taxes | (54.2 | ) | (6.0 | ) | 797.7 | % | (145.0 | ) | (78.6 | ) | 84.3 | % | ||||||||||||
Net Income | $ | 185.8 | $ | 32.9 | 465.7 | % | $ | 536.5 | $ | 317.7 | 68.9 | % | ||||||||||||
| Basic net income per share: | $ | 1.14 | $ | 0.20 | 470.0 | % | $ | 3.30 | $ | 1.94 | 70.1 | % | ||||||||||||
| Diluted net income per share: | $ | 1.12 | $ | 0.20 | 460.0 | % | $ | 3.24 | $ | 1.91 | 69.6 | % | ||||||||||||
Cash dividends declared per share (1): | $ | 0.27 | $ | 0.25 | 8.0 | % | $ | 0.81 | $ | 0.75 | 8.0 | % | ||||||||||||
Weighted average shares outstanding: | ||||||||||||||||||||||||
Basic | 162,502,191 | 163,580,563 | (0.7 | )% | 162,589,473 | 163,617,580 | (0.6 | )% | ||||||||||||||||
Diluted | 165,731,226 | 166,779,618 | (0.6 | )% | 165,519,899 | 166,673,946 | (0.7 | )% | ||||||||||||||||
The financial operating data below sets forth the information we believe is useful for investors in evaluating our overall financial performance: | ||||||||||||||||||||||||
Other data: | ||||||||||||||||||||||||
EBITDA (2): | ||||||||||||||||||||||||
| Insurance | $ | 291.5 | $ | 111.1 | 162.3 | % | $ | 846.2 | $ | 585.1 | 44.6 | % | ||||||||||||
| Energy and Specialized Markets | 63.0 | 30.1 | 109.5 | % | 165.5 | 107.6 | 53.8 | % | ||||||||||||||||
| Financial Services | 11.7 | 8.1 | 44.7 | % | 37.6 | 35.4 | 6.2 | % | ||||||||||||||||
| EBITDA | $ | 366.2 | $ | 149.3 | 145.3 | % | $ | 1,049.3 | $ | 728.1 | 44.1 | % | ||||||||||||
The following is a reconciliation of net income to EBITDA: | ||||||||||||||||||||||||
Net income | $ | 185.8 | $ | 32.9 | 465.7 | % | $ | 536.5 | $ | 317.7 | 68.9 | % | ||||||||||||
Depreciation and amortization of fixed assets and intangible assets | 90.9 | 79.1 | 14.9 | % | 264.9 | 238.1 | 11.3 | % | ||||||||||||||||
Interest expense | 35.3 | 31.3 | 13.0 | % | 102.9 | 93.7 | 9.8 | % | ||||||||||||||||
Provision for income taxes | 54.2 | 6.0 | 797.7 | % | 145.0 | 78.6 | 84.3 | % | ||||||||||||||||
EBITDA | $ | 366.2 | $ | 149.3 | 145.3 | % | $ | 1,049.3 | $ | 728.1 | 44.1 | % | ||||||||||||
(1) | Cash dividends declared per share is calculated by the aggregate cash dividends declared in a fiscal quarter divided by the shares issued and outstanding. See Note 11. of our consolidated financial statements included in this interim report on Form 10-Q. |
EBITDA is Although EBITDA is a non-GAAP financial measure, EBITDA is frequently used by securities analysts, lenders and others in their evaluation of companies. EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for an analysis of our |
• | EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments; |
• | EBITDA does not reflect changes in, or cash requirements for, our working capital needs; |
• | Although depreciation and amortization are noncash charges, the assets being depreciated and amortized often will have to be replaced in the future and EBITDA does not reflect any cash requirements for such replacements; and |
• | Other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness Consolidated Results of Three Months Ended September 30, 2019 Revenues Revenues were
Cost of Revenues Cost of revenues was $240.0 million for the three months ended September 30, Selling, General and Administrative Expenses Selling, general and administrative expenses, or SGA, were $96.4 million for the three months ended September 30, 2020 compared to $255.0 million for the three months ended September 30, 2019, a decrease of $158.6 million or 62.2%. Depreciation and Depreciation and amortization of Amortization of Intangible Assets Amortization of intangible assets was $41.5 million for the three months ended September 30, Other Operating Loss (Income) Other operating loss (income) was $0 for the three months ended September 30, 2020 compared to a loss of $6.2 million for the three months ended September 30, 2019, an increase of Investment (Loss) Income and Others, net Investment (loss) income and others, net was a loss of Interest Expense Interest expense was $35.3 million for the three months ended September 30, Provision for Income Taxes The provision for income taxes was $54.2 million for the three months ended September 30, 2020 compared to $6.0 million for the three months ended September 30, 2019, an increase of $48.2 million or 797.7%. The effective tax rate was 22.6% for the three months ended September 30, 2020 compared to 15.5% for the three months ended September 30, 2019. The effective tax rate for the three months ended September 30, 2020 was higher than the September 30, 2019 effective tax rate primarily due to lower impact of tax benefits from equity compensation in the current period versus the prior period, the deferred tax impact of the tax rate increase in the United Kingdom that took place in and was recorded in the current period, and favorable audit settlement benefits recognized in the prior period. These increases were partially offset by lower nondeductible earn-out expenses in the current period versus the prior period. Net Income Margin The net income margin for our consolidated results was 26.4% for the three months ended September 30, 2020 compared to 5.0% for the three months ended September 30, 2019. The increase in net income margin was primarily related to the EVT Litigation Reserve, a reduction in travel expenses as a result of COVID-19, and cost discipline. EBITDA Margin The EBITDA margin for our consolidated results was 52.1% for the three months ended September 30, 2020 as compared to 22.9% for the three months ended September 30, 2019. The increase in EBITDA margin was primarily related to the EVT Litigation Reserve, a reduction in travel expenses as a result of COVID-19, and cost discipline. Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019 Revenues Revenues were $2,071.2 million for the nine months ended September 30, 2020 compared to $1,930.3 million for the nine months ended September 30, 2019, an increase of $140.9 million or 7.3%. Our recent acquisitions (BuildFax, FAST and Franco Signor within the Insurance segment, the CaaS business and Genscape within the Energy and Specialized Markets segment, and Commerce Signals within the Financial Services segment) and dispositions (the aerial imagery sourcing group and the compliance background screening business within the claims category of the Insurance segment, and the retail analytics solution business and the data warehouse business within the Financial Services segment) contributed net revenues of $81.5 million. The remaining movement in our consolidated revenue increased $59.4 million or 3.1% related to the following: revenues within our Insurance segment increased $61.7 million or 4.5%; revenues within our Energy and Specialized Markets segment decreased $2.6 million or 0.6%; and revenues within our Financial Services segment increased $0.3 million or 0.2%. Refer to the Results of Operations by Segment within this section for more information regarding our revenues. As noted in the COVID-19 section above, certain transactional revenues have experienced declines, which had a negative impact on our results for the nine months ended September 30, 2020.
Cost of Revenues Cost of revenues was $733.4 million for the nine months ended September 30, 2020 compared to $717.0 million for the nine months ended September 30, 2019, an increase of $16.4 million or 2.3%. Our recent acquisitions and dispositions accounted for an increase of Selling, General and Administrative Expenses Selling, general and administrative expenses were $304.8 million for the nine months ended September 30, 2020 compared to $478.7 million for the nine months ended September 30, 2019, a decrease of $173.9 million or 36.3%. Our EVT Litigation Reserve accounted for a decrease of $125 million (See Note 16 - Commitments and Contingencies of our condensed consolidated financial statements included in this quarterly report on Form 10-Q). Our acquisition related costs (earn-outs) accounted for a decrease of $43.3 million. Our recent acquisitions Depreciation and Amortization of Fixed Assets Depreciation and amortization of fixed assets was $141.3 million for the nine months ended September 30, 2020 compared to $138.0 million for the nine months ended September 30, 2019, an increase of $3.3 million or 2.4%. The increase was primarily driven by assets placed in service of $12.9 million to support data capacity expansion and revenue growth, and recent acquisitions of $8.2 million. These increases were partially offset by our recent dispositions of $17.8 million. Amortization of Intangible Assets Amortization of intangible assets was $123.6 million for the nine months ended September 30, 2020 compared to $100.1 million for the nine months ended September 30, 2019, an increase of $23.5 million or 23.4%. This was primarily driven by the additional amortization of intangible assets incurred in connection with our recent acquisitions. Other Operating Loss (Income) Other operating loss (income) was a gain of $19.4 million for the nine months ended September 30, 2020 compared to a loss of $6.2 million for the nine months ended September 30, 2019, an increase of $25.6 million, primarily related to gains associated with the dispositions of our compliance background screening business and data warehouse business for the nine months ended September 30, 2020 and the loss associated with the disposition of our retail analytics solution business for the nine months ended September 30, 2019. Investment (Loss) Income and Others, net Investment (loss) income and others, net was a loss of $3.1 million for the nine months ended September 30, 2020, compared to a loss of $0.3million for the nine months ended September 30, 2019. The increase of $2.8 million was primarily due to a loss on foreign currencies. Interest Expense Interest expense was $102.9 million for the nine months ended September 30, 2020 compared to $93.7 million for the nine months ended September 30, 2019, an increase of $9.2 million or 9.8%. The increase was primarily driven by the additional senior notes of $500.0 million that were issued in the second quarter of 2020. The proceeds of these senior notes were used for general corporate purposes, including to support the repayment of the Credit Facility. Provision for Income Taxes The provision for income taxes was $145.0 million for the nine months ended September 30, 2020 compared to $78.6 million for the nine months ended September 30, 2019, an increase of $66.4 million or 84.3%. The effective tax rate was 21.3% for the nine months ended September 30, 2020 compared to 19.8% for the nine months ended September 30, 2019. The effective tax rate for the nine months ended September 30, 2020 was higher than the September 30, 2019 effective tax rate primarily due to the deferred tax impact of the tax rate increase in the United Kingdom that took place in and was recorded in the current period, favorable audit settlement benefits recognized in the prior period, and the tax expense recorded in the current period in connection with the disposition of the aerial imagery sourcing business resulting from differences in the book and tax basis of the assets and entities disposed of. These increases were partially offset by lower nondeductible earn-out expenses in the current period versus the prior period. Net Income Margin The net income margin for our consolidated results was 25.9% for the nine months ended September 30, 2020 compared to 16.5% for the nine months ended September 30, 2019. The increase in net income margin was primarily related to the EVT Litigation Reserve, a decrease in acquisition-related costs (earn-outs), the gains on sales of our compliance background screening business and data warehouse business, a reduction in travel expenses as a result of COVID-19, and cost discipline. EBITDA Margin The EBITDA margin for our consolidated results was 50.7% for the nine months ended September 30, 2020 as compared to 37.7% for the nine months ended September 30, 2019. The increase in EBITDA margin was primarily related to the EVT Litigation Reserve, a decrease in acquisition-related costs (earn-outs), the gains on sales of our compliance background screening business and data warehouse business, a reduction in travel expenses as a result of COVID-19, and cost discipline. Results of Operations by Segment Insurance Revenues Revenues for our Insurance segment were $498.6 million for the three months ended September 30, 2020 compared to $469.0 million for the three months ended September 30, 2019, an increase of $29.6 million or 6.3%. Our underwriting & rating revenue increased $35.4 million or 11.3%. Our claims revenue decreased $5.8 million or 3.8%. Our revenue by category for the periods presented is set forth below:
Our recent acquisitions (BuildFax, FAST and Franco Signor) and dispositions (the aerial imagery sourcing group and the compliance background screening business) contributed net revenues of $4.4 million and the remaining Insurance revenue increased $25.2 million or 5.5%. Our underwriting & rating revenue increased $21.3 million or 6.8%, primarily due to an annual increase in prices derived from the continued enhancements to the content of the solutions within our industry-standard insurance programs as well as selling expanded solutions to existing customers in commercial and personal lines. In addition, catastrophe modeling services contributed to the growth. Our claims revenue increased $3.9 million or 2.7%, primarily due to growth in our repair cost estimating solutions revenue. These increases were slightly offset by the impact of the injunction ruling related to the roof measurement solutions in the fourth quarter of 2019 and a decline in certain transactional revenues in connection with the COVID-19 pandemic. Revenues for our Insurance segment were $1,474.4 million for the nine months ended September 30, 2020 compared to $1,393.5 million for the nine months ended September 30, 2019, an increase of $80.9 million or 5.8%. Our underwriting & rating revenue increased $102.4 million or 11.0%. Our claims revenue decreased $21.5 million or 4.7%. Our revenue by category for the periods presented is set forth below:
Our recent acquisitions (BuildFax, FAST and Franco Signor) and dispositions (the aerial imagery sourcing group and the compliance background screening business) contributed net revenues of $19.2 million and the remaining Insurance revenue increased $61.7 million or 4.5%. Our underwriting & rating revenue increased $61.8 million or 6.6%, primarily due to an annual increase in prices derived from the continued enhancements to the content of the solutions within our industry-standard insurance programs as well as selling expanded solutions to existing customers in commercial and personal lines. In addition, catastrophe modeling services contributed to the growth. Our claims revenue decreased $0.1 million or 0%, primarily due to the impact of the injunction ruling related to the roof measurement solutions in the fourth quarter of 2019 and a decline in certain transactional revenues in connection with the COVID-19 pandemic. These decreases were slightly offset by growth in our repair cost estimating solutions revenue. Cost of Revenues Cost of revenues for our Insurance segment was $151.0 million for the three months ended September 30, 2020 compared to $160.7 million for the three months ended September 30, 2019, a decrease of $9.7 million or 6.0%. Our recent acquisitions and dispositions within the Insurance segment represented a net decrease of $1.0 million in cost of revenues. The remaining cost of revenues decreased $8.7 million or 5.7% primarily due to decreases in salaries and employee benefits of $5.6 million, travel expenses of $3.7 million, data costs of $2.4 million, and other operating expenses of $0.4 million. The decrease in travel expense primarily resulted from travel restrictions in connection with the COVID-19 pandemic and a reduction in travel-related costs due to the sale of our aerial imagery sourcing group in February 2020. These decreases were partially offset by increases in information technology expenses of $2.9 million and professional consulting fees of $0.5 million. Cost of revenues for our Insurance segment was $461.7 million for the nine months ended September 30, 2020 compared to $474.0 million for the nine months ended September 30, 2019, a decrease of $12.3 million or 2.6%. Our recent acquisitions and dispositions within the Insurance segment represented an increase of $4.1 million in cost of revenues, which was primarily related to salaries and employee benefits. The remaining cost of revenues decreased $16.4 million or 3.6% primarily due to decreases in salaries and employee benefits of $9.5 million, travel expenses of $8.4 million, data costs of $6.3 million, and other operating costs of $0.6 million. The decrease in salaries and employee benefits was mostly resulting from a reduction in our annual short-term incentives. The decrease in travel expenses primarily resulted from travel restrictions in connection with the COVID-19 pandemic and a reduction in travel-related costs due to the sale of our aerial imagery sourcing group in February 2020. These decreases were partially offset by increases in information technology expenses of $6.9 million and professional consulting fees of $1.5 million. Selling, General and Administrative Expenses Selling, general and administrative expenses for our Insurance segment were $55.8 million for the three months ended September 30, 2020 compared to $196.7 million for the three months ended September 30, 2019, a decrease of $140.9 million or 71.6%. Our EVT Litigation Reserve accounted for a decrease of $125.0 million (See Note 16 - Commitments and Contingencies of our condensed consolidated financial statements included in this quarterly report on Form 10-Q). Our acquisition-related costs (earn-outs) accounted for a decrease of $10.5 million. Our recent acquisitions and dispositions accounted for an increase of $1.3 million, which was primarily related to salaries and employee benefits. The remaining SGA decrease of $6.7 million or 3.4% was primarily due to decreases in professional consulting costs of $2.6 million, information technology expenses of $1.7 million, travel expenses of $1.5 million, and other operating costs of $1.9 million. These decreases were partially offset by an increase in salaries and employee benefits of Selling, general and Other Operating Loss (Income) Other operating loss (income) was a gain of $15.9 million for the nine months ended September 30, 2020 compared to $0 for the nine months ended September 30, 2019, an increase of $15.9 million, primarily related to a gain associated with the disposition of our compliance background screening business. EBITDA Margin EBITDA for our Insurance segment was $846.2 million for the nine months ended September 30, 2020 compared to $585.1 million for the nine months ended September 30, 2019. The EBITDA margin for our Insurance segment was 57.4% for the nine months ended September 30, 2020 compared to 42.0% for the nine months ended September 30, 2019. The increase in EBITDA margin was primarily related to the EVT Litigation Reserve, a decrease in acquisition-related costs (earn-outs), the gain on sale of our compliance background screening business, a reduction in travel expenses as a result of COVID-19 and cost discipline. Energy and Specialized Markets Revenues Revenues for our Energy and Specialized Markets segment were $163.8 million for the three months ended September 30, Revenues for our Energy and Specialized Markets segment were $478.2 million for the nine months ended September 30, 2020 compared to $406.1million for the nine months ended September 30, 2019, an increase of $72.1 million or 17.8%. Our recent acquisitions, the CaaS business and Genscape, within this segment contributed revenues of $74.7 million. The remaining decrease in Energy and Specialized Markets revenue of $2.6 million or 0.6% was primarily due to declines in cost intelligence solutions' implementation projects that did not reoccur and consulting revenue in connection with the COVID-19 pandemic. These declines were slightly offset by increases in our environmental health and safety service revenue, core research solutions and weather analytics revenue. Cost of Revenues Cost of revenues for our Energy and Specialized Markets segment was $64.5 million for the three months ended September 30,
Cost of revenues for our Selling, General and Administrative Expenses Selling, general and administrative expenses for our 28 Selling, general and administrative expenses for our EBITDA Margin EBITDA 2020 compared to 26.5% for the nine months ended September 30, 2019. The increase in EBITDA margin was primarily related to cost discipline, a reduction in travel expenses as a result of COVID-19, and a decrease in acquisition-related costs (earn-outs) as discussed above. Financial Services Revenues Revenues for our Revenues for our Financial Services segment were $118.6 million for the nine months ended September 30, 2020 compared to $130.7 million for the nine months ended September 30, 2019, a decrease of $12.1 million or 9.2%. Our recent acquisition of Commerce Signals and dispositions of the retail analytics solution business and the data warehouse business contributed a net decrease in revenues of $12.4 million. This remaining increase in Financial Services revenue was $0.3 million or 0.2%. Cost of Revenues Cost of revenues for our Financial Services segment was $24.5 million for the three months ended September 30,
The decrease in travel expenses primarily resulted from travel restrictions in connection with the COVID-19 pandemic. Cost of revenues for our Selling, General and Administrative Expenses Selling, general and administrative expenses for our Selling, general and administrative expenses for Other Operating Loss (Income) Other operating loss (income) was $0 for the three months ended September 30, 2020 compared to a loss of $6.2 million for the three months ended September 30, 2019. The increase of $6.2 million was related to a loss generated from the sale of our Other operating loss (income) was a gain of $3.5 million for the nine months ended September 30, EBITDA Margin EBITDA for our Financial Services segment was $37.6 million for the nine months ended September 30, . Liquidity and Capital Resources As of September 30, We have historically managed the business with a working capital deficit due to the fact that, as described above, we offer our solutions and services primarily through annual subscriptions or long-term contracts, which are generally prepaid quarterly or annually in advance of the services being rendered. When cash is received for prepayment of invoices, we record an asset (cash and cash equivalents) on our balance sheet with the offset recorded as a current liability (deferred revenues). This current liability is deferred revenue that does not require a direct cash outflow since our customers have prepaid and are obligated to purchase the services. In most businesses, growth in revenue typically leads to an increase in the accounts receivable balance causing a use of cash as a company grows. Unlike We have also historically used a portion of our cash for repurchases of our common stock from our stockholders. During the nine months ended September 30, Despite current market conditions as a result of the COVID-19 pandemic, we have not observed a loss of any significant customers, a significant deterioration in the collectability of receivables, a significant reduction in our liquidity, nor a significant decline in subscription renewal rates. We continue to maintain sufficient financial resources to meet our debt and operating obligations, an investment-grade credit rating, staggered debt maturities with no debt maturity until May 2021, and ongoing access to our Credit Facility and the investment grade debt markets. Financing and Financing Capacity On May 8, 2020, we completed an issuance of $500.0 million aggregate principal amount of 3.625% senior notes due 2050 (the "2050 notes"). The 2050 notes mature on May 15, 2050 and We had total debt, excluding finance lease liabilities, unamortized discounts and premium, and debt issuance costs of $3,150.0 million and As of September 30, We are considering the implications of the transition of LIBOR to alternative reference rate measures that will likely become effective post December 2021. We believe that there is still some uncertainty over what these rates will be but one possibility for U.S. dollar LIBOR would be the Secured Overnight Financing Rate ("SOFR"). As this decision has not been finalized at the time of amending our Credit Facility agreement, there is no definitive alternative rate proposed in the current contract. We are, however, reviewing the potential impact on the application of this rate on our interest expense once it becomes applicable. As our only current contract extending beyond 2021, that is subject to the LIBOR rate is the Credit Facility, the impact will be dependent on what the outstanding borrowing amount is on the Credit Facility and the relevant interest rate that will be contractually applicable. Should we amend our Credit Facility to reflect SOFR, based on recent borrowings and applicable SOFR, we do not anticipate to have a material impact on the business. As of September 30, 2020 and December 31, 2019, the available capacity under the Credit Facility was $994.8 million and $500.2 million, net of the letters of credit of $5.2 million and $4.8 million, respectively. We had no outstanding borrowings under the Credit Facility as of September 30, Cash Flow The following table summarizes our cash flow
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Operating Activities Net cash provided by operating activities was Net cash provided by operating activities was $819.2 million for the nine months ended September 30, payments. Investing Activities Net cash used in investing activities of Net cash used in investing activities of $364.7 million for the nine months ended September 30, Financing Activities Net cash used in financing activities of $76.5 million for the three months ended September 30, 2020 was primarily driven by repurchases of common stock of $50.0 million and dividend payments of $43.9 million, partially offset by stock options exercised of $26.0 million. Net cash provided by financing activities of $51.4 million for the three months ended September 30, 2019 was primarily driven by proceeds from the Net cash used in financing activities of $418.9 million for the nine months ended September 30, 2020 was primarily driven by net debt repayments on our Credit Facility of $495.0 million, repurchases of common stock of $298.8 million, dividend payments of $131.8 million, and payment of contingent liabilities related to acquisitions of $34.2 million, partially offset by net proceeds from issuance of the senior notes of $494.8 million and proceeds from stock options exercised of $68.3 million. Net cash used in financing activities of Off-Balance Sheet Arrangements We have no off-balance sheet arrangements. Contractual Obligations There have been no material changes to our contractual obligations outside the ordinary course of our business from those reported in our annual report on Form 10-K and filed with the Securities and Exchange Commission on February 18, 2020 except for the 2050 notes disclosed in Financing and Financing Capacity within this Management's Discussion and Analysis of Financial Condition and Results of Operations in this interim report on Form 10-Q. Critical Accounting Policies and Estimates Our management’s discussion and analysis of financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements require management to make estimates and judgments that affect reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the dates of the financial statements and revenue and expenses during the reporting periods. These estimates are based on historical experience and on other assumptions that are believed to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates, including those related to acquisition purchase price allocations, revenue recognition, goodwill and intangible assets, pension and other
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