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 to
Commission File Number:
001-34480VERISK ANALYTICS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 26-2994223 | |
(State or other jurisdiction of | (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 every Interactive Data File required to be submitted 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 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 25, 2019,30, 2020, there were 163,869,831162,589,797 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 | ||||
| 2019 | 2018 | ||||||
| (in millions, except for share and per share data) | |||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 311.8 | $ | 139.5 | |||
| Accounts receivable, net of allowance for doubtful accounts of $9.2 and $5.7, respectively | 405.5 | 356.4 | |||||
| Prepaid expenses | 71.9 | 63.9 | |||||
| Income taxes receivable | 23.3 | 34.0 | |||||
| Other current assets | 18.5 | 50.7 | |||||
| Total current assets | 831.0 | 644.5 | |||||
| Noncurrent assets: | |||||||
| Fixed assets, net | 586.5 | 555.9 | |||||
| Operating lease right-of-use assets, net | 222.1 | — | |||||
| Intangible assets, net | 1,141.2 | 1,227.8 | |||||
| Goodwill | 3,367.0 | 3,361.5 | |||||
| Deferred income tax assets | 10.7 | 11.1 | |||||
| Other assets | 130.6 | 99.5 | |||||
| Total assets | $ | 6,289.1 | $ | 5,900.3 | |||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
| Current liabilities: | |||||||
| Accounts payable and accrued liabilities | $ | 362.8 | $ | 250.8 | |||
| Acquisition-related liabilities | 81.3 | 12.7 | |||||
| Short-term debt and current portion of long-term debt | 24.9 | 672.8 | |||||
| Deferred revenues | 460.4 | 383.1 | |||||
| Operating lease liabilities | 39.4 | — | |||||
| Income taxes payable | 4.8 | 5.2 | |||||
| Total current liabilities | 973.6 | 1,324.6 | |||||
| Noncurrent liabilities: | |||||||
| Long-term debt | 2,668.4 | 2,050.5 | |||||
| Deferred income tax liabilities | 322.2 | 350.6 | |||||
| Operating lease liabilities | 212.3 | — | |||||
| Acquisition-related liabilities | 0.2 | 28.3 | |||||
| Other liabilities | 48.7 | 75.7 | |||||
| Total liabilities | 4,225.4 | 3,829.7 | |||||
| Commitments and contingencies | |||||||
| Stockholders’ equity: | |||||||
| Verisk common stock, $.001 par value; 2,000,000,000 shares authorized; 544,003,038 shares issued and 163,651,530 and 163,970,410 shares outstanding, respectively | 0.1 | 0.1 | |||||
| Additional paid-in capital | 2,357.3 | 2,283.0 | |||||
| Treasury stock, at cost, 380,351,508 and 380,032,628 shares, respectively | (3,751.9 | ) | (3,563.2 | ) | |||
| Retained earnings | 4,136.6 | 3,942.6 | |||||
| Accumulated other comprehensive losses | (678.4 | ) | (591.9 | ) | |||
| Total stockholders’ equity | 2,063.7 | 2,070.6 | |||||
| Total liabilities and stockholders’ equity | $ | 6,289.1 | $ | 5,900.3 | |||
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, | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
| (in millions, except for share and per share data) | |||||||||||||||
| Revenues | $ | 652.7 | $ | 598.7 | $ | 1,930.3 | $ | 1,781.2 | |||||||
| Operating expenses: | |||||||||||||||
| Cost of revenues (exclusive of items shown separately below) | 242.9 | 219.2 | 717.0 | 662.2 | |||||||||||
| Selling, general and administrative | 255.0 | 95.7 | 478.7 | 281.0 | |||||||||||
| Depreciation and amortization of fixed assets | 45.8 | 39.5 | 138.0 | 121.6 | |||||||||||
| Amortization of intangible assets | 33.3 | 33.2 | 100.1 | 98.5 | |||||||||||
| Total operating expenses | 577.0 | 387.6 | 1,433.8 | 1,163.3 | |||||||||||
| Operating income | 75.7 | 211.1 | 496.5 | 617.9 | |||||||||||
| Other income (expense): | |||||||||||||||
| Investment (loss) income and others, net | (5.5 | ) | 14.1 | (6.5 | ) | 19.3 | |||||||||
| Interest expense | (31.3 | ) | (32.4 | ) | (93.7 | ) | (97.1 | ) | |||||||
| Total other expense, net | (36.8 | ) | (18.3 | ) | (100.2 | ) | (77.8 | ) | |||||||
| Income before income taxes | 38.9 | 192.8 | 396.3 | 540.1 | |||||||||||
| Provision for income taxes | (6.0 | ) | (26.8 | ) | (78.6 | ) | (87.6 | ) | |||||||
| Net income | $ | 32.9 | $ | 166.0 | $ | 317.7 | $ | 452.5 | |||||||
| Basic net income per share | $ | 0.20 | $ | 1.01 | $ | 1.94 | $ | 2.74 | |||||||
| Diluted net income per share | $ | 0.20 | $ | 0.99 | $ | 1.91 | $ | 2.68 | |||||||
| Weighted-average shares outstanding: | |||||||||||||||
| Basic | 163,580,563 | 164,829,250 | 163,617,580 | 164,962,647 | |||||||||||
| Diluted | 166,779,618 | 168,200,766 | 166,673,946 | 168,614,835 | |||||||||||
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, | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
| (in millions) | |||||||||||||||
| Net income | $ | 32.9 | $ | 166.0 | $ | 317.7 | $ | 452.5 | |||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||
| Foreign currency translation adjustment | (87.3 | ) | (35.7 | ) | (89.7 | ) | (98.6 | ) | |||||||
| Pension and postretirement liability adjustment | 1.1 | 0.3 | 3.2 | 2.0 | |||||||||||
| Total other comprehensive loss | (86.2 | ) | (35.4 | ) | (86.5 | ) | (96.6 | ) | |||||||
| Comprehensive (loss) income | $ | (53.3 | ) | $ | 130.6 | $ | 231.2 | $ | 355.9 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
For The Three Months Ended September 30, 20192020 and 20182019
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, June 30, 2019 | 544,003,038 | $ | 0.1 | $ | 2,336.9 | $ | (3,679.4 | ) | $ | 4,145.3 | $ | (592.2 | ) | $ | 2,210.7 | |||||||||||
| Net income | — | — | — | — | 32.9 | — | 32.9 | |||||||||||||||||||
| Common stock dividend ($0.25 per share declared) | — | — | — | — | (41.6 | ) | — | (41.6 | ) | |||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | (86.2 | ) | (86.2 | ) | |||||||||||||||||
| Treasury stock acquired (490,716 shares) | — | — | — | (75.0 | ) | — | — | (75.0 | ) | |||||||||||||||||
| Stock options exercised (252,172 shares transferred from treasury stock) | — | — | 10.6 | 2.4 | — | — | 13.0 | |||||||||||||||||||
| Restricted stock lapsed (1,636 shares transferred from treasury stock) | — | — | — | — | — | — | — | |||||||||||||||||||
| Stock based compensation | — | — | 8.8 | — | — | — | 8.8 | |||||||||||||||||||
| Net share settlement from restricted stock awards (240 shares withheld for tax settlement) | — | — | — | — | — | — | — | |||||||||||||||||||
| Other stock issuances (13,657 shares transferred from treasury stock) | — | — | 1.0 | 0.1 | — | — | 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 | |||||||||||
| Balance, June 30, 2018 | 544,003,038 | $ | 0.1 | $ | 2,235.0 | $ | (3,317.7 | ) | $ | 3,630.4 | $ | (474.2 | ) | $ | 2,073.6 | |||||||||||
| Net income | — | — | — | 166.0 | — | 166.0 | ||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (35.4 | ) | (35.4 | ) | ||||||||||||||||||
| Treasury stock acquired (862,957 shares) | — | — | — | (101.8 | ) | — | — | (101.8 | ) | |||||||||||||||||
| Stock options exercised (932,600 shares transferred from treasury stock) | — | — | 19.3 | 8.4 | — | — | 27.7 | |||||||||||||||||||
| Restricted stock lapsed (3,761 shares transferred from treasury stock) | — | — | — | — | — | — | — | |||||||||||||||||||
| Stock based compensation | — | — | 10.3 | — | — | — | 10.3 | |||||||||||||||||||
| Other stock issuances (13,131 shares transferred from treasury stock) | — | — | 0.7 | 0.1 | — | — | 0.8 | |||||||||||||||||||
| Balance, September 30, 2018 | 544,003,038 | $ | 0.1 | $ | 2,265.3 | $ | (3,411.0 | ) | $ | 3,796.4 | $ | (509.6 | ) | $ | 2,141.2 | |||||||||||
_______________
(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 CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
For The Nine Months Ended September 30, 20192020 and 20182019
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 | |||||||||||||
| 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, 2019 | 544,003,038 | $ | 0.1 | $ | 2,283.0 | $ | (3,563.2 | ) | $ | 3,942.6 | $ | (591.9 | ) | $ | 2,070.6 | |||||||||||
| Net income | — | — | — | — | 317.7 | — | 317.7 | |||||||||||||||||||
| Common stock dividend ($0.75 per share declared) | — | — | — | — | (123.7 | ) | — | (123.7 | ) | |||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | (86.5 | ) | (86.5 | ) | |||||||||||||||||
| Treasury stock acquired (1,488,779 shares) | — | — | — | (200.0 | ) | — | — | (200.0 | ) | |||||||||||||||||
| Stock options exercised (970,348 shares transferred from treasury stock) | — | — | 41.8 | 9.3 | — | — | 51.1 | |||||||||||||||||||
| Restricted stock lapsed (163,989 shares transferred from treasury stock) | — | — | (1.6 | ) | 1.6 | — | — | — | ||||||||||||||||||
| Stock-based compensation | — | — | 36.4 | — | — | — | 36.4 | |||||||||||||||||||
| Net share settlement from restricted stock awards (37,875 shares withheld for tax settlement) | — | — | (5.1 | ) | — | — | — | (5.1 | ) | |||||||||||||||||
| Other stock issuances (35,562 shares transferred from treasury stock) | — | — | 2.8 | 0.4 | — | — | 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 | |||||||||||
| Balance, January 1, 2018 | 544,003,038 | $ | 0.1 | $ | 2,180.1 | $ | (3,150.5 | ) | $ | 3,308.0 | $ | (412.3 | ) | $ | 1,925.4 | |||||||||||
| Adjustments to opening retained earnings related to Topic 606 and ASU 2016-01 | — | — | — | — | 35.9 | (0.7 | ) | 35.2 | ||||||||||||||||||
| Net income | — | — | — | — | 452.5 | — | 452.5 | |||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | (96.6 | ) | (96.6 | ) | |||||||||||||||||
| Treasury stock acquired (2,574,123 shares) | — | — | — | (282.2 | ) | — | — | (282.2 | ) | |||||||||||||||||
| Stock options exercised (2,301,868 shares transferred from treasury stock) | — | — | 58.0 | 20.0 | — | — | 78.0 | |||||||||||||||||||
| Restricted stock lapsed (170,833 shares transferred from treasury stock) | — | — | (1.4 | ) | 1.4 | — | — | — | ||||||||||||||||||
| Stock-based compensation | — | — | 30.1 | — | — | — | 30.1 | |||||||||||||||||||
| Net share settlement from restricted stock awards (33,499 shares withheld for tax settlement) | — | — | (3.5 | ) | — | — | — | (3.5 | ) | |||||||||||||||||
| Other stock issuances (33,070 shares transferred from treasury stock) | — | — | 2.0 | 0.3 | — | — | 2.3 | |||||||||||||||||||
| Balance, September 30, 2018 | 544,003,038 | $ | 0.1 | $ | 2,265.3 | $ | (3,411.0 | ) | $ | 3,796.4 | $ | (509.6 | ) | $ | 2,141.2 | |||||||||||
_______________
(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 | ||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
| (in millions) | |||||||||||||||
| Cash flows from operating activities: | |||||||||||||||
| Net income | $ | 32.9 | $ | 166.0 | $ | 317.7 | $ | 452.5 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||
| Depreciation and amortization of fixed assets | 45.8 | 39.5 | 138.0 | 121.6 | |||||||||||
| Amortization of intangible assets | 33.3 | 33.2 | 100.1 | 98.5 | |||||||||||
| Amortization of debt issuance costs and original issue discount, net of original issue premium | 1.6 | 1.0 | 3.5 | 3.1 | |||||||||||
| Provision for doubtful accounts | 1.8 | 1.3 | 5.1 | 4.1 | |||||||||||
| Realized gain on subordinated promissory note | — | (12.3 | ) | — | (12.3 | ) | |||||||||
| Loss on sale of assets | 6.2 | — | 6.2 | — | |||||||||||
| Stock-based compensation | 8.8 | 10.3 | 36.4 | 30.1 | |||||||||||
| Realized gain on available-for-sale securities, net | (0.1 | ) | (0.2 | ) | (0.7 | ) | (0.3 | ) | |||||||
| Deferred income taxes | (27.4 | ) | (7.6 | ) | (27.4 | ) | (8.7 | ) | |||||||
| Loss on disposal of fixed assets, net | — | 0.1 | — | 0.2 | |||||||||||
| Changes in assets and liabilities, net of effects from acquisitions: | |||||||||||||||
| Accounts receivable | 35.2 | 18.5 | (54.5 | ) | 15.7 | ||||||||||
| Prepaid expenses and other assets | (9.2 | ) | (2.4 | ) | (19.9 | ) | (22.4 | ) | |||||||
| Operating lease right-of-use assets, net | 9.9 | — | 28.5 | — | |||||||||||
| Income taxes | 2.7 | 10.7 | 13.9 | 13.9 | |||||||||||
| Acquisition-related liabilities | 44.9 | 0.2 | 40.5 | 0.4 | |||||||||||
| Accounts payable and accrued liabilities | 138.7 | 41.1 | 152.7 | 37.8 | |||||||||||
| Deferred revenues | (95.3 | ) | (72.5 | ) | 71.5 | 51.3 | |||||||||
| Operating lease liabilities | (8.7 | ) | — | (27.2 | ) | — | |||||||||
| Other liabilities | (7.5 | ) | (0.3 | ) | (4.5 | ) | (24.5 | ) | |||||||
| Net cash provided by operating activities | 213.6 | 226.6 | 779.9 | 761.0 | |||||||||||
| Cash flows from investing activities: | |||||||||||||||
| Acquisitions, net of cash acquired of $3.1 and $0, and $6.8 and $3.1, respectively | (40.4 | ) | (0.5 | ) | (109.5 | ) | (61.4 | ) | |||||||
| Escrow funding associated with acquisitions | (4.5 | ) | — | (4.5 | ) | (6.3 | ) | ||||||||
| Proceeds from subordinated promissory note | — | 121.4 | — | 121.4 | |||||||||||
| Capital expenditures | (60.7 | ) | (55.2 | ) | (152.8 | ) | (154.5 | ) | |||||||
| Other investing activities, net | (0.8 | ) | 0.5 | (7.7 | ) | (3.0 | ) | ||||||||
| Net cash (used in) provided by investing activities | (106.4 | ) | 66.2 | (274.5 | ) | (103.8 | ) | ||||||||
| Cash flows from financing activities: | |||||||||||||||
| Repayments of short-term debt, net | (60.0 | ) | (195.0 | ) | (405.0 | ) | (430.0 | ) | |||||||
| Repayments of current portion of long-term debt | — | — | (250.0 | ) | — | ||||||||||
| Proceeds from issuance of long-term debt, inclusive of original issue premium and net of original issue discount | 221.8 | — | 619.7 | — | |||||||||||
| Payment of debt issuance costs | (1.2 | ) | — | (5.3 | ) | — | |||||||||
| Repurchases of common stock | (75.0 | ) | (102.8 | ) | (200.0 | ) | (282.2 | ) | |||||||
| Proceeds from stock options exercised | 13.5 | 27.7 | 45.8 | 74.7 | |||||||||||
| Net share settlement from restricted stock awards | — | — | (5.1 | ) | (3.5 | ) | |||||||||
| Dividends paid | (40.8 | ) | — | (122.7 | ) | — | |||||||||
| Other financing activities, net | (6.9 | ) | (1.3 | ) | (12.2 | ) | (7.5 | ) | |||||||
| Net cash provided by (used in) financing activities | 51.4 | (271.4 | ) | (334.8 | ) | (648.5 | ) | ||||||||
| Effect of exchange rate changes | (0.1 | ) | (5.8 | ) | 1.7 | (3.4 | ) | ||||||||
| Increase in cash and cash equivalents | 158.5 | 15.6 | 172.3 | 5.3 | |||||||||||
| Cash and cash equivalents, beginning of period | 153.3 | 132.0 | 139.5 | 142.3 | |||||||||||
| Cash and cash equivalents, end of period | $ | 311.8 | $ | 147.6 | $ | 311.8 | $ | 147.6 | |||||||
| Supplemental disclosures: | |||||||||||||||
| Income taxes paid | $ | 37.5 | $ | 23.7 | $ | 98.9 | $ | 81.7 | |||||||
| Interest paid | $ | 16.5 | $ | 17.5 | $ | 77.1 | $ | 81.4 | |||||||
| Noncash investing and financing activities: | |||||||||||||||
| Debt issuance costs included in accounts payable and accrued liabilities | $ | 1.3 | $ | — | $ | 1.3 | $ | — | |||||||
| Deferred tax liability established on date of acquisition | $ | 2.9 | $ | — | $ | 2.8 | $ | 5.1 | |||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | — | $ | — | $ | 247.6 | $ | — | |||||||
| Finance lease obligations | $ | 9.8 | $ | 1.4 | $ | 19.2 | $ | 12.8 | |||||||
| Operating lease obligations | $ | 2.0 | $ | — | $ | 3.3 | $ | — | |||||||
| Tenant improvements | $ | 0.9 | $ | 0.1 | $ | 1.6 | $ | 0.1 | |||||||
| Fixed assets included in accounts payable and accrued liabilities | $ | 0.5 | $ | 1.8 | $ | 0.5 | $ | 1.8 | |||||||
| Dividend payable included in other liabilities | $ | 0.8 | $ | — | $ | 1.0 | $ | — | |||||||
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”) is a data analytics provider serving customers in insurance, energy and specialized markets, and financial services. Using various technologies to collect and analyze billions of records, Verisk draws on numerous data assets and domain expertise to provide first-to-marketfirst-to-market innovations that are 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. Around the world, Verisk helps customers protect people, property, and financial assets.
Verisk was established to serve as the parent holding company of Insurance Services Office, Inc. (“ISO”) upon completion of the initial public offering (“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") insurance industry to provide statistical and actuarial services, to develop insurance programs and to assist insurance companies in meeting state regulatory requirements. Over the past decade, the Company 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 Nasdaq 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-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, 20192020 and for the three and nine months ended September 30, 2019 2020 and 2018,2019, 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, 20192020 are not necessarily indicative of the results to be expected for the full year. Other than adopting Accounting Standard Codification ("ASC") 842,
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 three and nine months ended September 30, 2019 2020 and 2018. 2019. No individual customer or country outside of the U.S. accounted for 10.0% or more of the Company's consolidated revenues for the three and nine months ended September 30, 20192020 or 2018.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
| Insurance: | |||||||||||||||
| Underwriting & rating | $ | 310.3 | $ | 285.1 | $ | 926.1 | $ | 854.6 | |||||||
| Claims | 156.5 | 142.6 | 460.4 | 415.1 | |||||||||||
| Total Insurance | 466.8 | 427.7 | 1,386.5 | 1,269.7 | |||||||||||
| Energy and Specialized Markets | 142.5 | 127.7 | 413.1 | 383.1 | |||||||||||
| Financial Services | 43.4 | 43.3 | 130.7 | 128.4 | |||||||||||
| Total revenues | $ | 652.7 | $ | 598.7 | $ | 1,930.3 | $ | 1,781.2 | |||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
| Revenues: | |||||||||||||||
| U.S. | $ | 515.9 | $ | 464.0 | $ | 1,489.8 | $ | 1,373.9 | |||||||
| U.K. | 42.0 | 36.6 | 130.5 | 107.6 | |||||||||||
| Other countries | 94.8 | 98.1 | 310.0 | 299.7 | |||||||||||
| Total revenues | $ | 652.7 | $ | 598.7 | $ | 1,930.3 | $ | 1,781.2 | |||||||
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 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, 20192020 and December 31, 2018,2019, the Company had 0no contract assets. Contract liabilities are defined as an entity's obligation to transfer goods or services to a customer for which the entity has received consideration (an amount of consideration is due) from the customer. As of September 30, 20192020 and December 31, 2018,2019, the Company had contract liabilitiesliabilities of $463.9 million$533.8 million and $385.1$443.2 million, respectively. The $78.8$90.6 million increase in contract liabilities from December 31, 20182019 to September 30, 20192020 was primarily due to billings of $338.2 million$405.6 million that were paid in advance, partially offsetoffset by $259.4 million$315.0 million of revenue recognized in the nine months ended September 30, 2019.2020. Contract liabilities, which are current and noncurrent, are included in "Deferred revenues" and "Other liabilities" in the condensed consolidated balance sheet, respectively, as of September 30, 20192020 and December 31, 2018. 2019.
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 the future related to performance obligations, included within our deferred revenuerevenues and other liabilities, that are unsatisfied were $463.9 $533.8million and $385.1$443.2 million as of September 30, 20192020 and December 31, 2018,2019, respectively. OurThe disclosure of the 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 thethe balance at September 30, 20192020 and December 31, 2018.
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, 20192020 and December 31, 2018,2019, the Company had deferred commissions of $58.5 $71.0 million and $49.5$63.7 million, respectively, which have been included in "Prepaid expenses" and "Other noncurrent assets" in the accompanying condensed consolidated balance sheets.
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 or liabilities valued based on observable market data for similar instruments. | |
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, accounts payable and accrued liabilities, and short-term debt approximate their carrying amounts because of the short-term nature of these instruments. The investments in registered investment companies, which are Level 1 assets measured at fair value on a recurring basis, were $3.4 millionwere $3.7 million and $3.3$3.6 million as of September 30, 20192020 and December 31, 2018,2019, respectively. RegisteredThe investments in registered investment companies are valued using quoted prices in active markets multiplied by the number of shares owned and were included in "Other current assets" in the accompanying condensed consolidated balance sheet.
The Company has elected not to carry its long-term debt at fair value. The carrying value of the long-term debt represents amortized cost, lessinclusive of unamortized premium, and net of unamortized discount and debt issuance costs, net of unamortized premium.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, 20192020 and December 31, 2018,2019, respectively:
| 2019 | 2018 | ||||||||||||||||
| Fair Value Hierarchy | Carrying Value | Estimated Fair Value | Carrying Value | Estimated Fair Value | |||||||||||||
| Financial instruments not carried at fair value: | |||||||||||||||||
| Long-term debt excluding finance lease liabilities and syndicated revolving credit facility debt issuance costs | Level 2 | $ | 2,649.7 | $ | 2,906.3 | $ | 2,031.0 | $ | 2,347.4 | ||||||||
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, 20192020, 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, 2018,2019, the Company had securities of $14.0 million, and $11.5 million whichwhich were accounted for as cost based investments under ASC 323-10-25,
The following table presentsCompany 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 cumulative effectoptions 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 changes made toright-of-use (“ROU”) assets and lease liabilities when the condensed consolidated balance sheet asCompany determines it is reasonably certain that it will exercise those options.
| December 31, 2018 | Adjustments due to ASC 842 | January 1, 2019 | ||||||||||
| Prepaid expenses | $ | 63.9 | $ | (0.2 | ) | $ | 63.7 | |||||
| Operating lease right-of-use assets, net | $ | — | $ | 247.8 | $ | 247.8 | ||||||
| Accounts payable and accrued liabilities | $ | 250.8 | $ | (2.0 | ) | $ | 248.8 | |||||
| Operating lease liabilities, current | $ | — | $ | 39.5 | $ | 39.5 | ||||||
| Operating lease liabilities, noncurrent | $ | — | $ | 236.4 | $ | 236.4 | ||||||
| Other liabilities | $ | 75.7 | $ | (26.3 | ) | $ | 49.4 | |||||
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, 2019.
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||
| 2019 | 2019 | ||||||
| Lease cost: | |||||||
Operating lease cost (1) | $ | 11.8 | $ | 35.9 | |||
| Finance lease cost | |||||||
Depreciation of finance lease assets (2) | 4.0 | 10.1 | |||||
Interest on finance lease liabilities (3) | 0.4 | 1.2 | |||||
| Total lease cost | $ | 16.2 | $ | 47.2 | |||
| Other information: | |||||||
| Cash paid for amounts included in the measurement of lease liabilities | |||||||
| Operating cash outflows from operating leases | $ | (10.8 | ) | $ | (34.4 | ) | |
| Operating cash outflows from finance leases | $ | (0.4 | ) | $ | (1.2 | ) | |
| Financing cash outflows from finance leases | $ | (6.9 | ) | $ | (11.4 | ) | |
| Weighted-average remaining lease term - operating leases | 9.5 years | 9.5 years | |||||
| Weighted-average remaining lease term - finance leases | 2.8 years | 2.8 years | |||||
| Weighted-average discount rate - operating leases | 3.9% | 3.9% | |||||
| Weighted-average discount rate - finance leases | 4.5% | 4.5% | |||||
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)(1)
(2)(2)
(3)(3)
The ROU assets and lease liabilities for finance leases were $29.1 m
Maturities of lease liabilities for the remainder of 20192020 and the years through 2025 and thereafter are as follows:
| September 30, 2019 | ||||||||
| Years Ending | Operating Leases | Finance Leases | ||||||
| 2019 | $ | 13.3 | $ | 4.9 | ||||
| 2020 | 47.5 | 15.0 | ||||||
| 2021 | 37.5 | 12.5 | ||||||
| 2022 | 34.1 | 4.9 | ||||||
| 2023 | 29.3 | 0.6 | ||||||
| 2024 | 20.1 | — | ||||||
| 2025 and thereafter | 127.6 | — | ||||||
| Total lease payments | 309.4 | 37.9 | ||||||
| Less: Amount representing interest | (57.7 | ) | (2.2 | ) | ||||
| Present value of total lease payments | $ | 251.7 | $ | 35.7 | ||||
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 | ||||
| Years Ending | Operating Leases | Capital Leases | |||||
| 2019 | $ | 46.0 | $ | 8.3 | |||
| 2020 | 46.3 | 9.5 | |||||
| 2021 | 37.2 | 8.6 | |||||
| 2022 | 33.8 | 2.8 | |||||
| 2023 | 28.9 | — | |||||
| 2024 and thereafter | 147.6 | — | |||||
| Net minimum lease payments | $ | 339.8 | 29.2 | ||||
| Less: Amount representing interest | (1.9 | ) | |||||
| Present value of net minimum lease capital payments | $ | 27.3 | |||||
2020 Acquisition
On September 30, 2018, respectively.
The preliminary purchase price allocation of the 2020acquisition is presented as part of "Others' in the table below.
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.
| CaaS | Others | Total | |||||||||
| Cash and cash equivalents | $ | 3.7 | $ | 3.1 | $ | 6.8 | |||||
| Accounts receivable | — | 3.9 | 3.9 | ||||||||
| Other current assets | 3.1 | 0.7 | 3.8 | ||||||||
| Fixed assets | — | 7.8 | 7.8 | ||||||||
| Operating lease right-of-use assets, net | — | 0.5 | 0.5 | ||||||||
| Intangible assets | 34.4 | 10.0 | 44.4 | ||||||||
| Goodwill | 42.9 | 26.5 | 69.4 | ||||||||
| Other assets | — | 4.7 | 4.7 | ||||||||
| Total assets acquired | 84.1 | 57.2 | 141.3 | ||||||||
| Current liabilities | (1.3 | ) | (1.3 | ) | (2.6 | ) | |||||
| Deferred revenues | (10.1 | ) | — | (10.1 | ) | ||||||
| Operating lease liabilities | — | (0.5 | ) | (0.5 | ) | ||||||
| Deferred income tax, net | 0.1 | (2.9 | ) | (2.8 | ) | ||||||
| Other liabilities | — | (4.5 | ) | (4.5 | ) | ||||||
| Total liabilities assumed | (11.3 | ) | (9.2 | ) | (20.5 | ) | |||||
| Net assets acquired | 72.8 | 48.0 | 120.8 | ||||||||
| Cash acquired | (3.7 | ) | (3.1 | ) | (6.8 | ) | |||||
| Net cash purchase price | $ | 69.1 | $ | 44.9 | $ | 114.0 | |||||
The preliminary amounts assigned to intangible assets by type for the 2019 acquisitions2020 acquisition are summarized in the table below:
| Weighted Average Useful Life | Total | ||||
| Technology | 7 years | $ | 6.9 | ||
| Marketing | 6 years | 1.3 | |||
| Customer | 11 years | 21.6 | |||
| Database | 10 years | 14.6 | |||
| Total intangible assets | $ | 44.4 | |||
Weighted Average Useful Life in Years | Total | |||||||
Technology | 6 | $ | 2.1 | |||||
Marketing | 5 | 1.2 | ||||||
Customer | 11 | 55.9 | ||||||
Total intangible assets | $ | 59.2 | ||||||
For the nine months ended September 30, 2019,2020, the Company finalized the purchase accounting for the acquisitions of Marketview Limited, Business Insight Limited,Content as a Service ("CaaS") and Validus-IVC Limited Property Pres Wizard LLC during the measurement periods in accordance with ASC 805,Business Combinations. The impactimpacts of finalization of the purchase accounting associated with these acquisitions was were not material to the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 20192020 and 2018.2019.
For the three and nine months ended September 30,2020, the Company incurred transaction costs of $0.5 million related to the 2020 acquisition. For the three and nine months ended September 30,2019, the Company incurred transaction costs of $0.3 million and $1.6 million, respectively. For the three and nine months ended September 30, 2018, the Company incurred transaction costs of $0 and $1.2 million, respectively. The transaction costs were included within "Selling, general and administrative" expenses in the accompanying condensed consolidated statements of operations. Of the total
goodwill associated with the 2019 acquisitionsThe acquisition of $69.4 million, $30.2 million associated with the stock purchase is not deductible for tax purposes.
Acquisition Escrows and Related Liabilities
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. At September 30, 20192020 and December 31, 2018,2019, the current portion of the escrows amounted to $0.7$1.7 million and $31.2$0.5 million, respectively, and the noncurrent portion of the escrows amounted to $12.9$16.8 million and $8.7$10.5 million, respectively. The decrease in the current portion of the escrows was primarily related to $30.8 million of escrow releases mostly associated with the Company's 2017 and 2018 acquisitions. The current and noncurrent portions of the escrows have been included in “Other current assets” and “Other assets” in the accompanying condensed consolidated balance sheets, respectively.
The acquisitions of Emergent Network Intelligence Limited,Power Advocate, Inc., Healix International Holdings Limited, Emergence Network Intelligence Limited, Validus-IVC Limited, Arium Limited, and Rebmark Legal Solutions Limited, PowerAdvocate, Inc. and Validus-IVC 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, 20192020 and December 31, 20182019 reflect the best estimate of acquisition related contingent payments. The associated current acquisition related liabilities were $81.3$12.6 million and $12.7$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, 2019 and December 31, 2018, respectively. 2020. The associated noncurrent acquisition related liabilities for these acquisitions were of $0.2 million and $28.3 million as of September 30,2020 and December 31,2019.
In the third quarter of 2019, the Company sold its 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 claims category within the Company’s Insurance segment as of December 31, 2018, respectively.2019.
On February 1, 2020, the sale of the aerial imagery sourcing group was completed. The Company contributed assets related to the disposed business, including cash of $63.8 million, in exchange for a non-controlling 35.0% ownership interest in a nonpublic company, Vexcel. The Company determined the fair value of the securities associated with the non-controlling ownership interest in Vexcel with the assistance of valuations performed by third party specialists, including the discounted cash flow analysis and estimates made by management. The securities were concluded not to have a readily determinable fair value and did not qualify for the practical expedient to estimate fair value in accordance with ASC 820-10. At each subsequent reporting period, the Company is required to perform a qualitative assessment considering impairment indicators to evaluate whether the investment is impaired. The contributed assets approximated the fair value of the equity securities related to the non-controlling ownership interest; therefore, there was no gain or loss recorded in conjunction with this disposition for the nine months ended September 30, 2020.
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 operating loss (income)" within the accompanying condensed consolidated statements of operations for the nine months ended September 30, 2020.
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 loss (income)" within the accompanying condensed consolidated statements of operations for the nine months ended September 30, 2020.
The following is a summary of the change in goodwill from December 31, 20182019 through September 30, 2019,2020, both in total and as allocated to the Company’s operating segments:
| Insurance | Energy and Specialized Markets | Financial Services | Total | ||||||||||||
| Goodwill at December 31, 2018 | $ | 833.8 | $ | 2,054.7 | $ | 473.0 | $ | 3,361.5 | |||||||
| Current period acquisitions | 26.5 | 42.9 | — | 69.4 | |||||||||||
| Current period disposition | — | — | (0.7 | ) | (0.7 | ) | |||||||||
| Purchase accounting reclassification | 0.3 | — | (0.1 | ) | 0.2 | ||||||||||
| Foreign currency translation | (14.1 | ) | (49.0 | ) | (0.3 | ) | (63.4 | ) | |||||||
| Goodwill at September 30, 2019 | $ | 846.5 | $ | 2,048.6 | $ | 471.9 | $ | 3,367.0 | |||||||
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, 2019,2020, and concluded that there was 0 impairment of goodwill. There were no triggering events for the three months ended September 30, 2019 2020 that would impact the results of the impairment test performed as of June 30, 2019.
The Company’s intangible assets and related accumulated amortization consisted of the following:
Weighted Average Useful Life | Cost | Accumulated Amortization | Net | ||||||||||
| September 30, 2019 | |||||||||||||
| Technology | 8 years | $ | 438.5 | $ | (281.1 | ) | $ | 157.4 | |||||
| Marketing | 16 years | 249.6 | (87.0 | ) | 162.6 | ||||||||
| Contract | 6 years | 5.0 | (5.0 | ) | — | ||||||||
| Customer | 14 years | 723.7 | (258.9 | ) | 464.8 | ||||||||
| Database | 19 years | 450.8 | (94.4 | ) | 356.4 | ||||||||
| Total intangible assets | $ | 1,867.6 | $ | (726.4 | ) | $ | 1,141.2 | ||||||
| December 31, 2018 | |||||||||||||
| Technology | 8 years | $ | 438.8 | $ | (255.5 | ) | $ | 183.3 | |||||
| Marketing | 16 years | 255.8 | (77.2 | ) | 178.6 | ||||||||
| Contract | 6 years | 5.0 | (5.0 | ) | — | ||||||||
| Customer | 14 years | 718.2 | (223.9 | ) | 494.3 | ||||||||
| Database | 19 years | 450.5 | (78.9 | ) | 371.6 | ||||||||
| Total intangible assets | $ | 1,868.3 | $ | (640.5 | ) | $ | 1,227.8 | ||||||
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, 20192020 and 20182019 was $33.3$41.5 million and $33.2$33.3 million, respectively. Amortization expense related to intangible assets for the nine months ended September 30, 2019 2020 and 20182019 was $100.1$123.6 million and $98.5$100.1 million, respectively. Estimated amortization expense for the remainder of 20192020 and the years through 20242025 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 | ||
| 2019 | $ | 33.2 | |
| 2020 | 130.5 | ||
| 2021 | 120.2 | ||
| 2022 | 109.3 | ||
| 2023 | 97.5 | ||
| 2024 and thereafter | 650.5 | ||
| $ | 1,141.2 | ||
The Company’s effective tax rate for the three and nine months ended September 30, 20192020 was 15.5%22.6% and 19.8%21.3% compared to the effective tax rate for the three and nine months ended September 30, 20182019 of 13.9%15.5% and 16.2%19.8%. The effective tax rate for the three months ended September 30, 20192020 was higher than the September 30, 20182019 effective tax rate due to the impact of nondeductible earn-out expenses in the current period, offset by favorable audit settlements in the current period. The effective tax rate for the nine months ended September 30, 2019 is higher than the effective tax rate for the nine months ended September 30, 2018 primarily due to thelower impact of lower tax benefits from equity compensation in the current period versus the prior period, as well as 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 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 Company’s disposition of its 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. The difference between statutory tax rates and the Company’s effective tax rate is primarily due to tax benefits attributable to 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, 20192020 and December 31, 2018:
Issuance Date | Maturity Date | 2019 | 2018 | ||||||||
| Short-term debt and current portion of long-term debt: | |||||||||||
| Syndicated revolving credit facility | Various | Various | $ | 10.0 | $ | 415.0 | |||||
| Senior notes: | |||||||||||
| 4.875% senior notes | 12/8/2011 | 1/15/2019 | — | 250.0 | |||||||
Finance lease liabilities (1) | Various | Various | 14.9 | 7.8 | |||||||
| Short-term debt and current portion of long-term debt | 24.9 | 672.8 | |||||||||
| Long-term debt: | |||||||||||
| Senior notes: | |||||||||||
4.125% senior notes (2), inclusive of unamortized premium, and net of unamortized discount and debt issuance costs of $13.9 | 03/06/2019 | 03/15/2029 | 613.9 | — | |||||||
| 4.000% senior notes, less unamortized discount and debt issuance costs of $(7.0) and $(7.9), respectively | 05/15/2015 | 06/15/2025 | 893.0 | 892.1 | |||||||
| 5.500% senior notes, less unamortized discount and debt issuance costs of $(4.6) and $(4.7), respectively | 05/15/2015 | 06/15/2045 | 345.4 | 345.3 | |||||||
| 4.125% senior notes, less unamortized discount and debt issuance costs of $(1.8) and $(2.3), respectively | 09/12/2012 | 09/12/2022 | 348.2 | 347.7 | |||||||
| 5.800% senior notes, less unamortized discount and debt issuance costs of $(0.8) and $(1.2), respectively | 04/06/2011 | 05/01/2021 | 449.2 | 448.8 | |||||||
Finance lease liabilities (1) | Various | Various | 20.8 | 19.5 | |||||||
| Syndicated revolving credit facility debt issuance costs | Various | Various | (2.1 | ) | (2.9 | ) | |||||
| Long-term debt | 2,668.4 | 2,050.5 | |||||||||
| Total debt | $ | 2,693.3 | $ | 2,723.3 | |||||||
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)(1)
On
As of September 30, 2020, the Company entered into the Fourth Amendment (the "Amendment") to thehad a $1,000.0 million committed senior unsecured Syndicated Revolving Credit Facility (the "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 the Northern Trust Company, which reduced the borrowing capacity from $1,500.0 million to $1,000.0 million, extended the maturity date to August 15, 2024, and amended the pricing grid. Interest on borrowings under the Amendment is payable at an interest rate of LIBOR plus 1.0% to 1.625%, depending upon the public debt rating. A commitment fee on any unused balance is payable periodically and may range from 8.0 to 20.0 basis points based upon the public debt rating. The Amendment also contains certain financial and other covenants that, among other things, impose certain restrictions on indebtedness, liens, investments, and capital expenditures. These covenants place restrictions on mergers, asset sales, sale/leaseback transactions, and certain transactions with affiliates. The financial covenants require that, at the end of any fiscal quarter, the Company has a consolidated funded debt leverage ratio of less than 3.5 to 1.0. At the election of the Company, the maximum consolidated funded debt leverage ratio could be permitted to increase to 4.0 to 1.0 for no more than once and 4.25 to 1.0 in any subsequent request for no more than once.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"). As of September 30, 2019,2020, the Company was in compliance with all financial and other debt covenants under the Credit Facility. As of September 30, 20192020 and December 31, 2018,2019, the available capacity under the Credit FacilityFacility was $984.8$994.8 million and $500.2 million and $1,078.9 million,, net of the letters of credit of $5.2 millionmillion and $6.1$4.8 million, respectively. In connection with the Amendment, the Company incurred additional debt issuance costs of $0.6 million, which will be amortized to "Interest expense" within the accompanying condensed consolidated statements of operations over the remaining life of the Credit Facility. In addition, due to the reduction in the available capacity as part of the Amendment, previously capitalized debt issuance costs of $0.7 million were written off and recorded to "Interest expense" in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2019. Subsequent to September 30, 2019, the Company had borrowings of $250.0 million and repayments of $10.0 million under the Credit Facility.
The Company has 2,000,000,000 shares of authorized common stock as of September 30, 20192020 and December 31, 2018.2019. 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 current 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 0tnot issue any preferred shares as of September 30, 2019.
On February 13, 2019, 12, 2020, April 29, 2019 2020 and July 24, 2019, 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. The cash dividend
Share Repurchase Program
Since May 2010, the Company has authorized repurchases of up to $3,300.0$3,800.0 million of its common stock through its Repurchase Program. TheProgram, inclusive of the $500.0 million authorization approved by the Board on February 12, 2020. Since the introduction of share repurchase as a feature of the Company's capital management strategies in 2010, the Company has repurchased shares with an aggregate value of $3,072.4$3,471.2 million. The Company repurchased 1,488,779 sharesAs of common stock with an aggregate value of $200.0 million during the nine months ended September 30, 2019. As of September 30, 2019,2020, the Company had $227.6$328.8 million available to repurchase shares through its Repurchase Program.
In December 2018, 2019, March 2019, 2020 and June 2019, 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 and $75.0 million, respectively, with Morgan Stanley & Co. LLC and HSBC Bank USA, N.A. and Bank of America, N.A., respectively. The ASR agreements are each accounted for as a treasury stock transaction and a forward stock purchase agreement indexed to the Company's common stock. The forward stock purchase agreements arewere each classified as an equity instrument under ASC 815-40,
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, 2019,2020, the Company’s treasury stock consisted of 380,351,508381,251,589 shares of common stock, carried at cost. During the nine months ended September 30, 2019,2020, the Company transferred 1,169,8991,482,072 shares of common stock from the treasury shares at a weighted average treasury stock price of $9.67$10.61 per share.
Earnings Per Share
Basic EPS is computed by dividing net income 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 deferred stock units, had been issued.
The following is a presentation of the numerators and denominators of the basic and diluted EPS computations for the three and nine months ended September 30, 2019 2020 and 2018:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
| Numerator used in basic and diluted EPS: | |||||||||||||||
| Net income | $ | 32.9 | $ | 166.0 | $ | 317.7 | $ | 452.5 | |||||||
| Denominator: | |||||||||||||||
| Weighted average number of common shares used in basic EPS | 163,580,563 | 164,829,250 | 163,617,580 | 164,962,647 | |||||||||||
| Effect of dilutive shares: | |||||||||||||||
| Potential common shares issuable from stock options and stock awards | 3,199,055 | 3,371,516 | 3,056,366 | 3,652,188 | |||||||||||
| Weighted average number of common shares and dilutive potential common shares used in diluted EPS | 166,779,618 | 168,200,766 | 166,673,946 | 168,614,835 | |||||||||||
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 870,60640,741 and 956,014870,606 for the three months ended September 30, 2019 2020 and 2018,2019, and 675,324 and 606,100 and 622,199 for the nine months ended September 30, 2019 2020 and 2018,2019, 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, 20192020 and December 31, 2018:
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 | ) | ||
| 2019 | 2018 | ||||||
| Foreign currency translation adjustment | $ | (578.2 | ) | $ | (488.5 | ) | |
| Pension and postretirement adjustment, net of tax | (100.2 | ) | (103.4 | ) | |||
| Accumulated other comprehensive losses | $ | (678.4 | ) | $ | (591.9 | ) | |
The before tax and after tax amounts of other comprehensive income (loss) for the three and nine months ended September 30, 2019 2020 and 20182019 are summarized below:
| Before Tax | Tax (Expense) Benefit | After Tax | |||||||||
| For the Three Months Ended September 30, 2019 | |||||||||||
| Foreign currency translation adjustment | $ | (87.3 | ) | $ | — | $ | (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 | ) | ||
| For the Three Months Ended September 30, 2018 | |||||||||||
| Foreign currency translation adjustment | $ | (35.7 | ) | $ | — | $ | (35.7 | ) | |||
| Pension and postretirement adjustment before reclassifications | 1.9 | (0.8 | ) | 1.1 | |||||||
Amortization of net actuarial loss and prior service benefit reclassified from accumulated other comprehensive losses (1) | (0.9 | ) | 0.1 | (0.8 | ) | ||||||
| Pension and postretirement adjustment | 1.0 | (0.7 | ) | 0.3 | |||||||
| Total other comprehensive loss | $ | (34.7 | ) | $ | (0.7 | ) | $ | (35.4 | ) | ||
| Before Tax | Tax (Expense) Benefit | After Tax | |||||||||
| For the Nine Months Ended September 30, 2019 | |||||||||||
| Foreign currency translation adjustment | $ | (89.7 | ) | $ | — | $ | (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 | ) | ||
| For the Nine Months Ended September 30, 2018 | |||||||||||
| Foreign currency translation adjustment | $ | (98.6 | ) | $ | — | $ | (98.6 | ) | |||
| Pension and postretirement adjustment before reclassifications | 5.6 | (1.5 | ) | 4.1 | |||||||
Amortization of net actuarial loss and prior service benefit reclassified from accumulated other comprehensive losses (1) | (2.7 | ) | 0.6 | (2.1 | ) | ||||||
| Pension and postretirement adjustment | 2.9 | (0.9 | ) | 2.0 | |||||||
| Total other comprehensive loss | $ | (95.7 | ) | $ | (0.9 | ) | $ | (96.6 | ) | ||
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, restricted stock awards, deferred stock units, and performance share units ("PSU")PSUs are covered under the 2013 Incentive Plan or 2009 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 transferred common stock under these plans from the Company’s treasury shares. As of September 30, 2019, there2020, there were 4,381,854 3,099,195shares of common stock reserved and available for future issuance under the 2013 Incentive Plan. Cash received from stock option exercises for the threenine months ended September 30, 2019 2020 and 20182019 was $13.5$68.3 million and $27.7$45.8 million, respectively. Cash received from stock option exercises for the nine months ended September 30, 2019 and 2018 was $45.8 million and $74.7 million, respectively.
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-yearthree-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, which could be up to four years.
On January 15, 2020, the Company granted 18,713 and 19,247882,749 stock options, under148,658 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 UK Sharesave Plan at50,736 performance share units have a discounted exercise pricethree-year performance period, subject to recipients' continued service. On July 1, 2020, the Company granted 4,080 shares of $136.35common 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 $101.27, respectively.
A summary of the status of the stock options, restricted stock, and PSUs awarded under the 2013 Incentive Plan as of December 31, 20182019 and September 30, 20192020 and changes during the interim period are presented below:
| 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, 2018 | 6,820,046 | $ | 67.27 | $ | 284.9 | 533,335 | $ | 88.55 | 42,050 | $ | 140.70 | |||||||||||||
| Granted | 897,849 | $ | 135.12 | 163,541 | $ | 135.36 | 51,792 | $ | 173.59 | |||||||||||||||
| Dividend reinvestment | — | $ | — | — | $ | — | 239 | Not applicable | ||||||||||||||||
| Exercised or lapsed | (970,348 | ) | $ | 52.78 | $ | 84.0 | (209,712 | ) | $ | 84.60 | — | |||||||||||||
| Canceled, expired or forfeited | (144,258 | ) | $ | 94.63 | (25,077 | ) | $ | 109.94 | — | |||||||||||||||
| Outstanding at September 30, 2019 | 6,603,289 | $ | 78.04 | $ | 528.9 | 462,087 | $ | 98.63 | 94,081 | $ | 158.85 | |||||||||||||
| Exercisable at September 30, 2019 | 4,415,326 | $ | 63.32 | $ | 418.7 | |||||||||||||||||||
| Exercisable at December 31, 2018 | 4,360,117 | $ | 55.94 | $ | 231.5 | |||||||||||||||||||
| Nonvested at September 30, 2019 | 2,187,963 | 455,547 | 94,081 | |||||||||||||||||||||
| Expected to vest at September 30, 2019 | 1,852,243 | 428,029 | 183,231 | (1) | ||||||||||||||||||||
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, 2019 and 2018 was estimated using a Black-Scholes valuation model that uses the weighted average assumptions noted in the following table:
| 2019 | 2018 | ||||||
| Option pricing model | Black-Scholes | Black-Scholes | |||||
| Expected volatility | 18.76 | % | 18.51 | % | |||
| Risk-free interest rate | 2.27 | % | 2.52 | % | |||
| Expected term in years | 4.4 years | 4.4 years | |||||
| Dividend yield | 0.80 | % | — | ||||
| Weighted average grant date fair value per stock option | $ | 24.09 | $ | 21.37 | |||
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.
Intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the adjusted closing price of Verisk common stock as of the reporting date. Excess tax benefits from exercised stock options were recorded as income tax benefit in the condensed consolidated statements of operations. This tax benefit is calculated as the excess of the intrinsic value of options exercised and restricted stock lapsed in excess of compensation recognized for financial reporting purposes. The weighted average remaining contractual terms were 5.88 6.1years and 4.604.8 years for the outstanding and exercisable stock options, respectively, as of September 30, 2019.
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 employee stock purchase plan (“US ESPP”)UK Sharesave Plan offers eligiblequalifying employees in the United StatesKingdom 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 adjusted closing price of 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, 2020 and 2019, the Company granted 8,174 and 18,713 stock options under the UK Sharesave Plan. As of September 30, 2020, there were 453,866 shares of common stock reserved and available for future issuance under the UK Sharesave Plan.
The Company’s 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, 2019 2020 and 2018,2019, the CompanyCompany issued 25,312 and 23,321 and 21,988 sharesshares of common stock at a weighted discounted priceprice of $138.02$155.14 and $105.14$138.02 for the ESPP, respectively.
The Company maintains 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 also 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, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
| Interest cost | $ | 3.4 | $ | 3.8 | $ | — | $ | — | |||||||
| Expected return on plan assets | (7.1 | ) | (8.2 | ) | — | — | |||||||||
| Amortization of net actuarial loss | 0.7 | 0.8 | 0.1 | 0.1 | |||||||||||
Net periodic (benefit) cost | $ | (3.0 | ) | $ | (3.6 | ) | $ | 0.1 | $ | 0.1 | |||||
| Employer contributions, net | $ | 0.2 | $ | 0.2 | $ | (0.1 | ) | $ | 0.2 | ||||||
| Pension Plan and SERP | Postretirement Plan | ||||||||||||||
| For the Nine Months Ended September 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
| Interest cost | $ | 11.8 | $ | 11.4 | $ | 0.2 | $ | 0.2 | |||||||
| Expected return on plan assets | (22.6 | ) | (24.6 | ) | (0.1 | ) | (0.1 | ) | |||||||
| Amortization of prior service cost | 0.1 | 0.1 | (0.1 | ) | (0.1 | ) | |||||||||
| Amortization of net actuarial loss | 3.5 | 2.4 | 0.3 | 0.3 | |||||||||||
| Net periodic (benefit) cost | $ | (7.2 | ) | $ | (10.7 | ) | $ | 0.3 | $ | 0.3 | |||||
| Employer contributions, net | $ | 0.6 | $ | 0.7 | $ | (0.4 | ) | $ | (0.1 | ) | |||||
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, 20192020 are consistent with the amounts previously disclosed as of December 31, 2018.2019.
ASC 280-10,
Each of the reportable segments, Insurance, Energy and Specialized Markets, and Financial Services has a portion of its revenue from more than one of the three revenue types described within the Company's revenue recognition policy. Below is the overview of the solutions offered within each reportable segment.
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, which are accessed via a hosted platform. The Company also develops solutions that its customers use to analyze key processes in managing risk. 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, ranging from hurricanes to earthquakes. The Company develops catastrophe and extreme event models and offers solutions covering natural and man-made risks, including acts of terrorism. The Company further develops solutions that allow customers to quantify costs after loss events occur. The Company's multitier, multispectral terrestrial imagery and data acquisition, processing, analytics, and distribution system using the remote sensing and machine learning technologies help gather, store, process, and deliver geographic and spatially referenced information that supports uses in many markets.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 sale resulted in a loss of $6.2 million that was included within "Investment (loss) income and others, net" in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2019.
The following table providestables provide the Company’s revenue and EBITDA by reportable segment for the three and nine months ended September 30, 2019 2020 and 2018,2019, and the reconciliation of EBITDA to 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, 2019 | September 30, 2018 | ||||||||||||||||||||||||||||||
| Insurance | Energy and Specialized Markets | Financial Services | Total | Insurance | Energy and Specialized Markets | Financial Services | Total | ||||||||||||||||||||||||
| Revenues | $ | 466.8 | $ | 142.5 | $ | 43.4 | $ | 652.7 | $ | 427.7 | $ | 127.7 | $ | 43.3 | $ | 598.7 | |||||||||||||||
| Expenses: | |||||||||||||||||||||||||||||||
| Cost of revenues (exclusive of items shown separately below) | (158.6 | ) | (60.0 | ) | (24.3 | ) | (242.9 | ) | (142.1 | ) | (53.2 | ) | (23.9 | ) | (219.2 | ) | |||||||||||||||
| Selling, general and administrative | (195.5 | ) | (54.7 | ) | (4.8 | ) | (255.0 | ) | (57.5 | ) | (34.1 | ) | (4.1 | ) | (95.7 | ) | |||||||||||||||
| Investment (loss) income and others, net | (0.5 | ) | 1.2 | (6.2 | ) | (5.5 | ) | 12.0 | 0.8 | 1.3 | 14.1 | ||||||||||||||||||||
| EBITDA | $ | 112.2 | $ | 29.0 | $ | 8.1 | 149.3 | $ | 240.1 | $ | 41.2 | $ | 16.6 | 297.9 | |||||||||||||||||
| Depreciation and amortization of fixed assets | (45.8 | ) | (39.5 | ) | |||||||||||||||||||||||||||
| Amortization of intangible assets | (33.3 | ) | (33.2 | ) | |||||||||||||||||||||||||||
| Interest expense | (31.3 | ) | (32.4 | ) | |||||||||||||||||||||||||||
| Income before income taxes | $ | 38.9 | $ | 192.8 | |||||||||||||||||||||||||||
| For the Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, 2019 | September 30, 2018 | ||||||||||||||||||||||||||||||
| Insurance | Energy and Specialized Markets | Financial Services | Total | Insurance | Energy and Specialized Markets | Financial Services | Total | ||||||||||||||||||||||||
| Revenues | $ | 1,386.5 | $ | 413.1 | $ | 130.7 | $ | 1,930.3 | $ | 1,269.7 | $ | 383.1 | $ | 128.4 | $ | 1,781.2 | |||||||||||||||
| Expenses: | |||||||||||||||||||||||||||||||
| Cost of revenues (exclusive of items shown separately below) | (467.6 | ) | (176.2 | ) | (73.2 | ) | (717.0 | ) | (422.2 | ) | (164.7 | ) | (75.3 | ) | (662.2 | ) | |||||||||||||||
| Selling, general and administrative | (330.1 | ) | (132.9 | ) | (15.7 | ) | (478.7 | ) | (163.3 | ) | (103.6 | ) | (14.1 | ) | (281.0 | ) | |||||||||||||||
| Investment (loss) income and others, net | (0.6 | ) | 0.5 | (6.4 | ) | (6.5 | ) | 16.2 | 1.2 | 1.9 | 19.3 | ||||||||||||||||||||
| EBITDA | $ | 588.2 | $ | 104.5 | $ | 35.4 | 728.1 | $ | 700.4 | $ | 116.0 | $ | 40.9 | 857.3 | |||||||||||||||||
| Depreciation and amortization of fixed assets | (138.0 | ) | (121.6 | ) | |||||||||||||||||||||||||||
| Amortization of intangible assets | (100.1 | ) | (98.5 | ) | |||||||||||||||||||||||||||
| Interest expense | (93.7 | ) | (97.1 | ) | |||||||||||||||||||||||||||
| Income before income taxes | $ | 396.3 | $ | 540.1 | |||||||||||||||||||||||||||
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, 2019 | December 31, 2018 | ||||||
| Long-lived assets: | |||||||
| U.S | $ | 2,554.4 | $ | 2,335.8 | |||
| U.K. | 2,477.4 | 2,595.5 | |||||
| Other countries | 426.3 | 324.5 | |||||
| Total long-lived assets | $ | 5,458.1 | $ | 5,255.8 | |||
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. In the case of the 360Value Litigation, this is primarily because the matter is generally in early stages and discovery has not yet commenced. 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 alleged that the Company’s Roof InSight (now known as Geomni Roof), Property InSight product (now known as Geomni Property) and Aerial Sketch product in combination with the Company's Xactimate product infringe 7seven patents owned by Eagle View and Pictometry namely, Patent Nos. 8,078,436 (the "436"436 patent"), 8,170,840 (the "840"840 patent"), 8,209,152 (the "152"152 patent"), 8,542,880 (the "880"880 patent"), 8,818,770 (the "770"770 patent"), 8,823,732 (the "732"732 patent"), and 8,825,454 (the "454"454 patent"). On November 30, 2015, plaintiffs filed a First Amended Complaint adding Patent Nos. 9,129,376 (the "376"376 patent") and 9,135,737 (the "737"737 patent") to the lawsuit. The First Amended Complaint sought 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 19, 2017, the District Court entered a Joint Stipulated Order of Partial Dismissal with Prejudice dismissing all claims or assertions pertaining to the 880 and 732 patents, and certain asserted claims of the 436,840,152,770,454,376 and 737 patents (collectively the “Patents in Suit”). Eagle View further reduced the number of asserted claims pertaining to the Patents in Suit to 18 asserted claims. Thereafter,Subsequently, Eagle View dropped the 152 patent and furtherthe 737 patent and reduced the number of asserted claims from the 6five remaining Patents in Suit to 11 asserted claims. Fact discovery and expert discovery closed in 2018 and defendants' summary judgment motions were fully submitted on October 26, 2018. On December 6, 2018, the Court denied Eagle View’s motion for summary judgment that a key prior art reference be excluded. On December 20, 2018, the Court denied the Company’s motion for summary judgment of equitable estoppel. On January 29, 2019, the Court denied the Company’s motion for summary judgment of unpatentability pursuant to Section 101 of the Patent Statute. Thereafter, Eagle View dropped the 737 patent and further reduced the number of asserted claims from the 5 remaining Patents in Suit to 6six asserted claims. On September 25, 2019, following a trial, the jury determined that the Company had willfully infringed the 6six asserted claims, and assessed damages in the amount of $125.0 million, for which the Company has recorded a reserve. The impact associated with the reserve was included in the "Selling, general and administrative" in the accompanying condensed consolidated statements of operations.million. After trial, Eagle View has indicated that it plans to petition the Court to award up to treble damages. The Company plans to appeal these results. After trial, Plaintiff moved for a temporary restraining order (“TRO”) and a permanent injunction preventing defendants’the Company's sales of the Geomni Roof, Geomni Property and Aerial Sketch products in combination with Xactimate. The Court granted the motion for a TRO on September 26, 2019 and on October 18, 2019, issued an Order permanently enjoining defendants’the Company's sales of the Geomni Roof, Geomni Property and Aerial Sketch products in combination with Xactimate. AtIn addition, Eagle View has asked the Court to award enhanced damages by trebling the jury's damages award, together with attorneys' fees, costs, and pre- and post-judgment interest. The Company opposed all of Eagle View's requests and also asked the Court for judgment as a matter of law and for a new trial. Eagle View opposed the Company's requests. On September 9, 2020, the Court denied the Company's motion seeking judgment as a matter of law and a new trial. The Company timely filed its Amended Notice of Appeal on October 8, 2020. Eagle View's motion for an award of enhanced damages remains undecided by the Court. Following the outcome of the trial, the Company established a $125.0 million reserve in connection with this time, itlitigation, which was included in selling, general and administrative expenses in the consolidated statements of operations for the three and nine months ended September 30, 2019. It is not reasonably possible to determine the ultimate resolution of this matter.
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, for the Northern District of California titled Sheahan, et al. v. State Farm GeneralNew Jersey (No.2:20-cv-13223-CCC-MF) against Defendants Insurance Co.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”), et al.at any time between September 24, 2014 through the date of judgment. The action is brought by California homeowners, on their own behalf and on behalf of an unspecified putative class of State Farm policyholders whose homes were damaged or lost during the Northern California wildfires of 2017, against State Farm as well as the Company, ISO, and Xactware Solutions, Inc. Plaintiffs served a Second Amended Complaint on January 6, 2019. Like the First Amended Complaint, itcomplaint alleges that defendants throughall Defendants are fiduciaries with respect to the usePlan. Plaintiffs challenge the amount of fees paid by Plan participants to maintain the Company’s 360Value product conspired to under-insure plaintiffs’ homes by issuing undervalued policies and underestimating the costs of rebuilding those homes. Plaintiffs claim that defendants violated federal antitrust law as well as California consumer protection law and common law.
In September 2019,2020, the Company entered into an additional ASR agreement with HSBC Bank USA,Citibank, N.A. to repurchase shares of its common stock for an aggregate purchase price of $50.0 million. Upon payment of the aggregate purchase price on October 1, 2019,2020, the Company received an initial delivery of 252,940215,855 shares of its common stock at a price of $158.14$185.31 per share, representing approximately $40.0 million of the aggregate purchase price. Upon the final settlement of the ASR agreement in December 2019,2020, the Company may be entitled to receive additional shares of its common stock or, under certain limited circumstances, be required to deliver shares to the counter-party.
**************
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 20182019 10-K, dated and filed with the Securities and Exchange Commission on February 19, 2019.18, 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 2018 10-K.
Verisk is a leading data analytics provider serving customers in insurance, energy 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 three segments: Insurance, Energy and Specialized Markets, and Financial Services. Our Insurance segment provides underwriting and rating, and claims insurance data for the U.S. P&C insurance industry. This segment's revenues represented approximately 71% and 72% and 71% of our revenues for the nine months ended September 30, 20192020 and 2018,2019, 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 approximatelyapproximately 23% and 21% and 22% ofof our revenues for the nine months ended September 30, 20192020 and 2018,2019, respectively. Our Financial Services segment provides competitive benchmarking, decisioning algorithms, business intelligence, and customized analytic services to financial institutions, payment networks and processors, alternative lenders, regulators and merchants. Our Financial Services segment's revenues representedrepresented approximately 6% and 7% of ourour revenues for the nine months ended September 30, 2020 and 2019, respectively.
COVID-19
Since January 2020, an outbreak of the 2019 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 work-from-home model at this moment. On a daily basis, management is reviewing our operations and 2018.there have been to date minimal interruptions in our customer facing operations. Given the digital nature of our business and the move toward cloud enablement, we expect to remain operationally stable and fully available to our customers. We are in compliance with all financial covenants and 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 have analyzed our solutions and services to assess the impact of COVID-19 on our revenue streams. We have not identified any material impact stemming from COVID-19 on approximately 85% of our revenues at this point, as much of these revenues are subscription in nature and subject to long-term contracts. These revenues grew approximately 6% for the three months ended September 30, 2020.
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 revenue 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 services. Although we have experienced a decline in 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 the global outbreak of COVID-19 is still rapidly evolving, management continues to 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 as metrics to measure our performance. EBITDA is aand EBITDA margin are non-GAAP financial measuremeasures (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 and EBITDA margin
EBITDA 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.
We recognizeearn revenues through long-term agreements for hosted subscriptions, advisory/consulting services, and on afor transactional basis,solutions, recurring and non-recurring. Hosted subscriptionsSubscriptions 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 renewsrenewed 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 long-term agreements.
Approximately 82% and 81% of the revenues in our Insurance segment for both the nine months ended September 30, 20192020 and 2018, respectively,2019 were derived from hosted subscriptions with 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 84% and 78% of the revenues in our Energy and Specialized Markets segment for the nine months ended September 30, 20192020 and 2018,2019 were derived from hosted subscriptions with long-term agreements for our solutions.solutions, respectively. Our customers in this segment include most of the top 10 global energy providers around the world.providers. Approximately 76% and 72% of the revenues in our Financial Services segment for the nine months ended September 30, 20192020 and 2018,2019 were derived from subscriptions with long-term agreements for our solutions.solutions, 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 customers get more value out of our analytics and their subscriptions. In addition, certain of our solutions are paid for by our customers on a transactional basis, recurring and non-recurring. For example, we have solutions that allow our customers to access property-specific rating and underwriting information to price a policy on a commercial building, or compare a P&C insurance or a workers' compensation claim with information in our databases, or use our repair cost estimation solutions on a case-by-case basis. For the nine months ended September 30, 2020 and 2019, approximately 18% and 2018, approximately 20% of our consolidated revenues were derived from providing transactional recurring and non-recurring solutions.
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 approximately 53%60% and 58%53% of our total operating expenses for the nine months ended September 30, 20192020 and 2018,2019, respectively, include salaries, benefits, incentive compensation, equity compensation costs, sales commissions, employment taxes, recruiting costs, and outsourced temporary agency costs.
We assign 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 other costs such as facilities, insurance and communicationsCondensed Consolidated Results of Operations
| Three Months Ended September 30, | Percentage Change | Nine Months Ended September 30, | Percentage Change | ||||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||
| (in millions, except for share and per share data) | |||||||||||||||||||||
| Statement of income data: | |||||||||||||||||||||
| Revenues: | |||||||||||||||||||||
| Insurance | $ | 466.8 | $ | 427.7 | 9.2 | % | $ | 1,386.5 | $ | 1,269.7 | 9.2 | % | |||||||||
| Energy and Specialized Markets | 142.5 | 127.7 | 11.6 | % | 413.1 | 383.1 | 7.8 | % | |||||||||||||
| Financial Services | 43.4 | 43.3 | 0.1 | % | 130.7 | 128.4 | 1.8 | % | |||||||||||||
| Revenues | 652.7 | 598.7 | 9.0 | % | 1,930.3 | 1,781.2 | 8.4 | % | |||||||||||||
| Operating expenses: | |||||||||||||||||||||
| Cost of revenues (exclusive of items shown separately below) | 242.9 | 219.2 | 10.9 | % | 717.0 | 662.2 | 8.3 | % | |||||||||||||
| Selling, general and administrative | 255.0 | 95.7 | 166.4 | % | 478.7 | 281.0 | 70.3 | % | |||||||||||||
| Depreciation and amortization of fixed assets | 45.8 | 39.5 | 16.0 | % | 138.0 | 121.6 | 13.6 | % | |||||||||||||
| Amortization of intangible assets | 33.3 | 33.2 | 0.2 | % | 100.1 | 98.5 | 1.7 | % | |||||||||||||
| Total operating expenses | 577.0 | 387.6 | 48.9 | % | 1,433.8 | 1,163.3 | 23.3 | % | |||||||||||||
| Operating income | 75.7 | 211.1 | (64.1 | )% | 496.5 | 617.9 | (19.7 | )% | |||||||||||||
| Other income (expense): | |||||||||||||||||||||
| Investment (loss) income and others, net | (5.5 | ) | 14.1 | (139.6 | )% | (6.5 | ) | 19.3 | (133.5 | )% | |||||||||||
| Interest expense | (31.3 | ) | (32.4 | ) | (3.2 | )% | (93.7 | ) | (97.1 | ) | (3.5 | )% | |||||||||
| Total other expense, net | (36.8 | ) | (18.3 | ) | 101.9 | % | (100.2 | ) | (77.8 | ) | 28.8 | % | |||||||||
| Income before income taxes | 38.9 | 192.8 | (79.8 | )% | 396.3 | 540.1 | (26.6 | )% | |||||||||||||
| Provision for income taxes | (6.0 | ) | (26.8 | ) | (77.5 | )% | (78.6 | ) | (87.6 | ) | (10.3 | )% | |||||||||
| Net Income | $ | 32.9 | $ | 166.0 | (80.2 | )% | $ | 317.7 | $ | 452.5 | (29.8 | )% | |||||||||
| Basic net income per share: | $ | 0.20 | $ | 1.01 | (80.2 | )% | $ | 1.94 | $ | 2.74 | (29.2 | )% | |||||||||
| Diluted net income per share: | $ | 0.20 | $ | 0.99 | (79.8 | )% | $ | 1.91 | $ | 2.68 | (28.7 | )% | |||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||
| Basic | 163,580,563 | 164,829,250 | (0.8 | )% | 163,617,580 | 164,962,647 | (0.8 | )% | |||||||||||||
| Diluted | 166,779,618 | 168,200,766 | (0.8 | )% | 166,673,946 | 168,614,835 | (1.2 | )% | |||||||||||||
| 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): | |||||||||||||||||||||
| Insurance | $ | 112.2 | $ | 240.1 | (53.2 | )% | $ | 588.2 | $ | 700.4 | (16.0 | )% | |||||||||
| Energy and Specialized Markets | 29.0 | 41.2 | (29.7 | )% | 104.5 | 116.0 | (9.9 | )% | |||||||||||||
| Financial Services | 8.1 | 16.6 | (51.6 | )% | 35.4 | 40.9 | (13.3 | )% | |||||||||||||
| EBITDA | $ | 149.3 | $ | 297.9 | (49.9 | )% | $ | 728.1 | $ | 857.3 | (15.1 | )% | |||||||||
| The following is a reconciliation of net income to EBITDA: | |||||||||||||||||||||
| Net income | $ | 32.9 | $ | 166.0 | (80.2 | )% | $ | 317.7 | $ | 452.5 | (29.8 | )% | |||||||||
| Depreciation and amortization of fixed assets and intangible assets | 79.1 | 72.7 | 8.8 | % | 238.1 | 220.1 | 8.2 | % | |||||||||||||
| Interest expense | 31.3 | 32.4 | (3.2 | )% | 93.7 | 97.1 | (3.5 | )% | |||||||||||||
| Provision for income taxes | 6.0 | 26.8 | (77.5 | )% | 78.6 | 87.6 | (10.3 | )% | |||||||||||||
| EBITDA | $ | 149.3 | $ | 297.9 | (49.9 | )% | $ | 728.1 | $ | 857.3 | (15.1 | )% | |||||||||
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 a financial measure that management uses to evaluate the performance of our segments. “EBITDA” is defined as net income before interest expense, provision for income taxes, and depreciation and amortization of fixed and intangible assets. See Note |
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 operating income, net income or cash flows from operating activities reported under GAAP. Management uses EBITDA in conjunction with GAAP operating performance measures as part of its overall assessment of company performance. Some of these limitations are:
• | 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 as a comparative measure. |
Consolidated Results of Operations
Three Months Ended September 30, 20192020 Compared to Three Months Ended September 30, 2018
Revenues
Revenues were $652.7$702.7 million for the three months ended September 30, 2019 compared2020 compared to $598.7 million$652.7 million for the three months ended September 30, 2018,2019, an increase of $54.0$50.0 million or 9.0%7.6%. Our recent acquisitions (Rulebook, Keystone,(BuildFax, FAST and PPWFranco Signor within the Insurance segment, and the CaaS businessGenscape within the Energy and Specialized Markets segment, Commerce Signals within the Financial Services segment) and disposition (retaildispositions (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 $12.0$23.7 million. The remaining movement ofin our consolidated revenue increased $42.0$26.3 million or 7.0%4.1% related to the following: revenues within our Insurance segment increased $31.9$25.2 million or 7.5%5.5%; revenues within our Energy and Specialized Markets segment increased $9.0$0.4 million or 7.0%0.3%; and revenues within our Financial Services segment increased $1.1$0.7 million or 2.5%1.7%. Refer to the Results of Operations by Segment within this section for more information regarding our revenues.
| Three Months Ended September 30, | Percentage change | Percentage change excluding recent acquisitions and disposition | |||||||||||
| 2019 | 2018 | ||||||||||||
| (in millions) | |||||||||||||
| Insurance | $ | 466.8 | $ | 427.7 | 9.2 | % | 7.5 | % | |||||
| Energy and Specialized Markets | 142.5 | 127.7 | 11.6 | % | 7.0 | % | |||||||
| Financial Services | 43.4 | 43.3 | 0.1 | % | 2.5 | % | |||||||
| Total Revenues | $ | 652.7 | $ | 598.7 | 9.0 | % | 7.0 | % | |||||
| Three Months Ended September 30, | Percentage | Percentage change excluding | ||||||||||||||
| 2020 | 2019 | change | recent acquisitions and dispositions | |||||||||||||
(in millions) | ||||||||||||||||
Insurance | $ | 498.6 | $ | 469.0 | 6.3 | % | 5.5 | % | ||||||||
Energy and Specialized Markets | 163.8 | 140.3 | 16.7 | % | 0.3 | % | ||||||||||
Financial Services | 40.3 | 43.4 | (7.1 | )% | 1.7 | % | ||||||||||
Total Revenues | $ | 702.7 | $ | 652.7 | 7.6 | % | 4.1 | % | ||||||||
Cost of Revenues
Cost of revenues was $242.9$240.0 million for the three months ended September 30, 20192020 compared to $219.2 million$242.9 million for the three months ended September 30, 2018, an increase2019, a decrease of $23.7$2.9 million or 10.9%1.2%. Our recent acquisitions and dispositiondispositions accounted for an increase of $4.7$9.2 million in cost of revenues, which was primarily related to salaries and employee benefits. The remaining cost of revenues increased $19.0decreased $12.1 million or 8.7%5.2% primarily due to increasesdecreases in travel expenses of $7.6 million, salaries and employee benefits of $5.9 million, data costs of $2.1 million, and professional consulting costs of $1.7 million. The decrease in travel expenses primarily resulted from travel restrictions in connection with the COVID-19 pandemic. The decrease in salaries and employee benefits of $13.2 million,mostly resulted from a reduction in our annual short-term incentives. These decreases were partially offset by increases in information technology expenses of $2.2 million, data costs of $1.3$4.6 million and other operating expenses of $2.3 million for the three months ended September 30, 2019.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, or SGA, were $255.0$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%. Our litigation reserve recorded for the three months ended September 30, 2019 compared2019related to $95.7 million for the three months ended September 30, 2018, an increase of $159.3 million or 166.4%. Our litigation reserve related to the Xactware Solutions, Inc. Patent Litigation ("EVT Litigation Reserve")accounted for the increasea decrease of $125.0$125 million (See Note 15.16 - Commitments and Contingencies)Contingencies of our condensed consolidated financial statements included in this quarterly report on Form 10-Q). Our acquisition-relatedacquisition related costs (earn-out)(earn-outs) accounted for a decrease of $28.9 million. Our recent acquisitions and dispositions accounted for an increase of $28.6 million (See Note 6. Acquisitions). Our recent acquisitions and disposition accounted for an increase of $3.4$4.4 million in SGA primarily related to salaries and employee benefits. The remaining SGA increased $2.3decrease of $9.1 million or 2.4%3.6% was primarily due to increasesdecreases in travel expenses of $3.2 million, professional consulting costs of $1.9$2.9 million, information technology expenses of $0.7$1.7 million, and other general expenses of $2.1 million. The decrease in travel expenses primarily resulted from travel restrictions in connection with the COVID-19 pandemic. These decreases were partially offset by an increase in salaries and employee benefits of $0.1 million; these increases were partially offset by a decrease in other general expenses of $0.4$0.8 million.
Depreciation and Amortization of Fixed Assets
Depreciation and amortization of fixed assets was $45.8$49.4 million for the three months ended September 30, 2020 compared to $45.8 million for the three months ended September 30, 2019, comparedan increase of $3.6 million or 7.7%. The increase was primarily driven by $6.5 million of assets placed in service to $39.5support data capacity expansion and revenue growth, and recent acquisitions of 2.7 million. These increases were partially offset by our recent dispositions of $5.6 million.
Amortization of Intangible Assets
Amortization of intangible assets was $41.5 million for the three months ended September 30, 2018, an increase of $6.3 million or 16.0%. The increase in depreciation and amortization of fixed assets is primarily related to depreciation and amortization incurred in connection to our recent acquisitions, hardware and software development costs and aircraft equipment placed in use to support data capacity expansion and revenue growth.
Other Operating Loss (Income)
Other operating loss (income) was $0 for the three months ended September 30, 2018, an increase of $0.1 million or 0.2%. The amortization of intangible assets incurred in connection2020 compared to our recent acquisitions of $1.7 million was partially offset with the intangible assets that were fully amortized for the three months ended September 30, 2019.
Investment (Loss) Income and Others, net
Investment (loss) income and others, net was a loss of $0.1 million for the three months ended September 30, 2020, compared to a gain of $0.7 million for the three months ended September 30, 2019. The decrease of $0.8 million was primarily due to a loss on foreign currencies.
Interest Expense
Interest expense was $35.3 million for the three months ended September 30, 2020 compared to $31.3 million for the three months ended September 30, 2019, an increase of $4.0 million or 13.0%. 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 the repayment of the committed senior unsecured Syndicated Revolving Credit Facility (the "Credit Facility").
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, 20192020 Compared to Nine Months Ended September 30, 2018
Revenues
Revenues were $1,930.3$2,071.2 million for the nine months ended September 30, 2019 compared2020 compared to $1,781.2 million$1,930.3 million for the nine months ended September 30, 2018,2019, an increase of $149.1$140.9 million or 8.4%7.3%. Our recent acquisitions (Business Insight, Validus, Rulebook, Keystone,(BuildFax, FAST and PPWFranco Signor within the Insurance segment, and the CaaS business and Genscape within the Energy and Specialized Markets segment, and Commerce Signals within the Financial Services segment) and disposition (retaildispositions (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 $34.2$81.5 million. The remaining movement ofin our consolidated revenue increased $114.9$59.4 million or 6.5%3.1% related to the following: revenues within our Insurance segment increased $93.2$61.7 million or 7.4%4.5%; revenues within our Energy and Specialized Markets segment increased $18.4decreased $2.6 million or 4.8%0.6%; and revenues within our Financial Services segment increased $3.3$0.3 million or 2.6%0.2%. Refer to the Results of Operations by Segment within this section for more information regarding our revenues.
| Nine Months Ended September 30, | Percentage change | Percentage change excluding recent acquisitions and disposition | |||||||||||
| 2019 | 2018 | ||||||||||||
| (In millions) | |||||||||||||
| Insurance | $ | 1,386.5 | $ | 1,269.7 | 9.2 | % | 7.4 | % | |||||
| Energy and Specialized Markets | 413.1 | 383.1 | 7.8 | % | 4.8 | % | |||||||
| Financial Services | 130.7 | 128.4 | 1.8 | % | 2.6 | % | |||||||
| Total Revenues | $ | 1,930.3 | $ | 1,781.2 | 8.4 | % | 6.5 | % | |||||
Nine Months Ended September 30, | Percentage | Percentage change excluding | ||||||||||||||
2020 | 2019 | change | recent acquisitions and dispositions | |||||||||||||
(in millions) | ||||||||||||||||
Insurance | $ | 1,474.4 | $ | 1,393.5 | 5.8 | % | 4.5 | % | ||||||||
Energy and Specialized Markets | 478.2 | 406.1 | 17.8 | % | (0.6 | )% | ||||||||||
Financial Services | 118.6 | 130.7 | (9.2 | )% | 0.2 | % | ||||||||||
Total Revenues | $ | 2,071.2 | $ | 1,930.3 | 7.3 | % | 3.1 | % | ||||||||
Cost of Revenues
Cost of revenues was $717.0$733.4 million for the nine months ended September 30, 2019 compared2020 compared to $662.2 million$717.0 million for the nine months ended September 30, 2018,2019, an increase of $54.8$16.4 million or 8.3%2.3%. Our recent acquisitions and dispositiondispositions accounted for an increase of $9.0$39.9 million in cost of revenues, which was primarily related to salaries and employee benefits .benefits. The remaining cost of revenues increased $45.8 milliondecreased $23.5 million or 7.0% 3.4% primarily due to increasesdecreases in travel expenses of $18.1 million, salaries and employee benefits of $11.1 million, data costs of $5.7 million, and professional consulting costs of $1.9 million. The decrease in travel expense primarily resulted from travel restrictions in connection with the COVID-19 pandemic. The decrease in salaries and employee benefits of $34.0 million,mostly resulted from a reduction in our annual short-term incentives. These decreases were offset by increases in information technology expenses of $8.9$10.2 million and data costs of $4.0 million; these increases were partially offset by a decreases in other operating expenses of $1.1$3.1 million.
Selling, General and Administrative Expenses
Selling, general and administrative expenses or SGA, were $478.7$304.8 million for the nine months ended September 30, 20192020 compared to $281.0$478.7 million for the nine months ended September 30, 2018, an increase2019, a decrease of $197.7$173.9 million or 70.3%36.3%. Our litigation reserve related to the Xactware Solutions, Inc. PatentEVT Litigation Reserve accounted for the increasea decrease of $125.0$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 acquisition-related costs (earn-out)recent acquisitions and dispositions accounted for an increase of $45.3$17.8 million (See Note 6. Acquisitions). Our recent acquisitions and disposition accounted for an increase of $9.7 millionin SGA primarily related to salaries and employee benefits. The remaining SGA increased $17.7decrease of $23.4 million or 6.3%4.9% was primarily due to increasesdecreases in travel expenses of $8.1 million, professional consulting costs of $7.7 million, information technology expenses of $3.1 million, salaries and employee benefits of $0.4 million, and other general expenses of $4.1 million. The decrease in travel expense primarily resulted from travel restrictions in connection with the COVID-19 pandemic. The decrease in salaries and employee benefits mostly resulted from a reduction in our annual short-term incentives.
Depreciation and Amortization of Fixed Assets
Depreciation and amortization of fixed assets was $138.0$141.3 million for the nine months ended September 30, 2020 compared to $138.0 million for the nine months ended September 30, 2019, comparedan increase of $3.3 million or 2.4%. The increase was primarily driven by assets placed in service of $12.9 million to $121.6support 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, 2018,2020 compared to $100.1 million for the nine months ended September 30, 2019, an increase of $16.4$23.5 million or 13.6%23.4%. The increase in depreciation andThis was primarily driven by the additional amortization of fixedintangible assets primarily related to depreciation and amortization incurred in connection towith our recent acquisitions, hardware and software development costs and aircraft equipment placed into use to support data capacity expansion and revenue growth.acquisitions.
Other operating loss (income) was a gain of Intangible Assets
Investment (Loss) Income and Others, net
Investment (loss) income and others, net was a loss of $6.5$3.1 million for the nine months ended September 30, 2019,2020, compared to a gainloss of $19.3$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, 2018.2020 compared to $93.7 million for the nine months ended September 30, 2019, an increase of $9.2 million or 9.8%. The change of $25.8 millionincrease was primarily duedriven 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 a loss onsupport the salerepayment of our retail analytics solution business of $6.2the Credit Facility.
Provision for Income Taxes
The provision for income taxes was $145.0 million for the nine months ended September 30, 2019 and a realized gain and interest income of $20.4 million generated from the subordinated promissory note receivable for the nine months ended September 30, 2018.
Net Income Margin
The net income margin for our consolidated results was 16.5%25.9% for the nine months ended September 30, 20192020 compared to 25.4% forto 16.5% for the nine months ended September 30, 2018.2019. The decreaseincrease in net income margin was primarily related to the litigation reserve,EVT Litigation Reserve, a decrease in acquisition-related costs (earn-out)(earn-outs), the lossgains on the salesales of our retail analytics solutioncompliance background screening business higher accelerated vestingand data warehouse business, a reduction in travel expenses as a result of equity awards granted to employees at age 62,COVID-19, and a higher effective tax rate as discussed above.
EBITDA Margin
The EBITDA margin for our consolidated results was 37.7%50.7% for the nine months ended September 30, 20192020 as comparedcompared to 48.1% for37.7% for the nine months ended September 30, 2018.2019. The decreaseincrease in EBITDA margin was primarily related to the litigation reserve,EVT Litigation Reserve, a decrease in acquisition-related costs (earn-out)(earn-outs), the lossgains on the salesales of our retail analytics solutioncompliance background screening business and higher accelerated vestingdata warehouse business, a reduction in travel expenses as a result of equity awards granted to employees at age 62 for the nine months ended September 30, 2019.COVID-19, and cost discipline.
Results of Operations by Segment
Insurance
Revenues
Revenues for our Insurance segment were $466.8$498.6 million for the three months ended September 30, 2020 compared to $469.0 million for the three months ended September 30, 2019, compared to $427.7 million for the three months ended September 30, 2018, an increase of $39.1$29.6 million or 9.2%6.3%. Our underwriting & rating revenue increased $25.2$35.4 million or 8.8%11.3%. Our claims revenue increased $13.9decreased $5.8 million or 9.8%3.8%.
Our revenue by category for the periods presented is set forth below:
| For the Three Months Ended September 30, | Percentage | Percentage change excluding recent acquisitions | |||||||||||
| 2019 | 2018 | Change | |||||||||||
| (in millions) | |||||||||||||
| Underwriting & Rating | $ | 310.3 | $ | 285.1 | 8.8 | % | 7.6 | % | |||||
| Claims | 156.5 | 142.6 | 9.8 | % | 7.2 | % | |||||||
| Total Insurance | $ | 466.8 | $ | 427.7 | 9.2 | % | 7.5 | % | |||||
| Three Months Ended September 30, | Percentage | Percentage change excluding | ||||||||||||||
| 2020 | 2019 | change | recent acquisitions and dispositions | |||||||||||||
(in millions) | ||||||||||||||||
Underwriting & rating | $ | 347.9 | $ | 312.5 | 11.3 | % | 6.8 | % | ||||||||
Claims | 150.7 | 156.5 | (3.8 | )% | 2.7 | % | ||||||||||
Total Insurance | $ | 498.6 | $ | 469.0 | 6.3 | % | 5.5 | % | ||||||||
Our recent acquisitions Rulebook, Keystone,(BuildFax, FAST and PPW,Franco Signor) and dispositions (the aerial imagery sourcing group and the compliance background screening business) contributed net revenues of $7.2$4.4 million and the remaining Insurance revenue increased $31.9$25.2 million or 7.5%5.5%. Our underwriting & rating revenue increased $21.7increased $21.3 million or 7.6%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:
Nine Months Ended September 30, | Percentage | Percentage change excluding | ||||||||||||||
2020 | 2019 | change | recent acquisitions and dispositions | |||||||||||||
(in millions) | ||||||||||||||||
Underwriting & rating | $ | 1,035.5 | $ | 933.1 | 11.0 | % | 6.6 | % | ||||||||
Claims | 438.9 | 460.4 | (4.7 | )% | — | % | ||||||||||
Total Insurance | $ | 1,474.4 | $ | 1,393.5 | 5.8 | % | 4.5 | % | ||||||||
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 increased $10.2decreased $0.1 million or 7.2%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 claims analytics revenue, our remote imagery solutions revenue, and 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 $1,386.5partially 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, compareda 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 $1,269.7salaries 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 ninethree months ended September 30, 2018, an increase of $116.8 million or 9.2%. Our underwriting & rating revenue increased $71.5 million or 8.4%. Our claims revenue increased $45.3 million or 10.9%.
| For the Nine Months Ended September 30, | Percentage | Percentage change excluding recent acquisitions | |||||||||||
| 2019 | 2018 | Change | |||||||||||
| (in millions) | |||||||||||||
| Underwriting & Rating | $ | 926.1 | $ | 854.6 | 8.4 | % | 7.0 | % | |||||
| Claims | 460.4 | 415.1 | 10.9 | % | 8.1 | % | |||||||
| Total Insurance | $ | 1,386.5 | $ | 1,269.7 | 9.2 | % | 7.4 | % | |||||
Selling, general and administrative expenses for our Insurance segment were $180.8 million for the nine months ended September 30, 2020 compared to $333.8million for the nine months ended September 30, 2019, a decrease of $153.0 million or 45.8%. 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 $19.9 million. Our recent acquisitions and dispositions accounted for an increase of $7.6 million, which was primarily related to salaries and employee benefits. The remaining SGA decrease of $15.7 million or 4.7% was primarily due to decreases in professional consulting costs of $6.0 million, travel expenses of $4.3 million, information technology expenses of $3.3 million, and other general expenses of $3.7 million. These decreases were partially offset by an increase in salaries and employee benefits of $1.6 million.
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 $142.1$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, 2018,2020 compared to $140.3million for the three months ended September 30, 2019, an increase of $16.5$23.5 million or 11.6%16.7%. Our recent acquisition, Genscape, within this segment contributed revenues of $23.1 million. The remaining increase in Energy and Specialized Markets revenue of $0.4 million or 0.3% was primarily due to increases in our environmental health and safety service revenue, core research solutions and weather analytics revenue. These increases were offset by declines in cost intelligence solutions' implementation projects that did not reoccur and consulting revenue in connection with the COVID-19 pandemic.
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 InsuranceCOVID-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 representedwas $64.5 million for the three months ended September 30, 2020 compared to $57.9 million for the three months ended September 30, 2019, an increase of $6.6 million or 11.3%. Our recent acquisitions accounted for an increase of $10.3 million in cost of revenues, which was primarily related to salaries and employee benefits. The remaining cost of revenues decreased $3.7 million or 6.4% primarily due to decreases in travel expenses of $3.2 million, professional consulting costs of $2.5 million, and salaries and employee benefit costs of $0.1 million. The decrease in travel expenses primarily resulted from travel restrictions in connection with the COVID-19 pandemic. These decreases were partially offset by increases in information technology expenses of $0.8 million, data costs of $0.2 million, and other operating expenses of $1.1 million.
Cost of revenues for our Energy and Specialized Markets segment was $200.9 million for the nine months ended September 30, 2020 compared to $169.8 million for the nine months ended September 30, 2019, an increase of $31.1 million or 18.3%. Our recent acquisitions accounted for an increase of $37.3 million in cost of revenues, which was primarily related to salaries and employee benefits. The remaining cost of revenues decreased $6.2 million or 3.7% primarily due to decreases in travel expenses of $8.0 million, professional consulting costs of $3.8 million, and salaries and employee benefit costs of $0.2 million. The decrease in travel expenses primarily resulted from travel restrictions in connection with the COVID-19 pandemic. These decreases were partially offset by increases in information technology expenses of $1.8 million, data costs of $0.6 million, and other operating expenses of $3.4 million.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for our Energy and Specialized Markets segment were $36.2 million for the three months ended September 30, 2020 compared to $53.5 million for the three months ended September 30, 2019, a decrease of $17.3 million or 32.4%. Our acquisition-related costs (earn-outs) accounted for a decrease of $18.4 million. Our recent acquisitions accounted for an increase of $3.5 million primarily related to salaries and employee benefits. The remaining SGA decreased $2.4 million or 7.0% primarily due to decreases in travel expenses of $1.5 million, salaries and employee benefits costs of $0.6 million, professional consulting costs of $0.2 million, and other general expenses of $0.2 million. The decrease in travel expenses primarily resulted from travel restrictions in connections with the COVID-19 pandemic. These decreases were partially offset by an increase in information technology expenses of $0.1 million.
Selling, general and administrative expenses for our Energy and Specialized Markets segment were $110.5 million for the nine months ended September 30, 2020 compared to $129.2 million for the nine months ended September 30, 2019, a decrease of $18.7 million or 14.4%. Our acquisition-related costs (earn-outs) accounted for a decrease of $23.4 million. Our recent acquisitions accounted for an increase of $11.0 million primarily related to salaries and employee benefits. The remaining SGA decreased $6.3 million or 6.0% primarily due to decreases in travel expenses of $3.3 million, salaries and employee benefits costs of $2.2 million, professional consulting costs of $1.0 million, and other operating costs of $0.2 million. The decrease in travel expenses primarily resulted from travel restrictions in connection with the COVID-19 pandemic. The decrease in salaries and employee benefits mostly resulted from a reduction in our annual short-term incentives. These decreases were partially offset by an increase in information technology expenses of $0.4 million.
EBITDA Margin
EBITDA for our Energy and Specialized Markets segment was $165.5 million for the nine months ended September 30, 2020 compared to $107.6 million for the nine months ended September 30, 2019. The EBITDA margin for our Energy and Specialized Markets segment was 34.6% for the nine months ended September 30, 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 Financial Services segment were $40.3 million for the three months ended September 30, 2020 compared to $43.4million for the three months ended September 30, 2019, a decrease of $3.1 million or 7.1%. 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 $3.8 million. The remaining increase in Financial Services revenue was $0.7 million or 1.7%.
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, 2020 compared to $24.3 million for the three months ended September 30, 2019, an increase of $0.2 million or 0.7%. Our recent acquisition and dispositions within the Financial Services segment represented a net decrease of $0.1 million in cost of revenues, which was primarily related to salaries and employee benefits. The remaining cost of revenues increased $13.3$0.3 million or 9.3%1.2% primarily due to increases in salaries and employee benefits of $10.0 million, information technology expenses of $2.2$0.9 million, professional consulting costs of $0.3 million, and data costs of $1.1$0.1 million.
Cost of revenues for our InsuranceFinancial Services segment was $467.6$70.8 million for the nine months ended September 30, 2020 compared to $73.2 million for the nine months ended September 30, 2019, compared to $422.2 million for the nine months ended September 30, 2018, an increasea decrease of $45.4$2.4 million or 10.7%3.3%. Our recent
Selling, General and Administrative Expenses
Selling, general and administrative expenses for our InsuranceFinancial Services segment were $195.5$4.4 million for the three months ended September 30, 20192020 compared to $57.5 million$4.8 million for the three months ended September 30, 2018, an increase2019, a decrease of $138.0$0.4 million or 240.1%9.5%. Our litigation reserve related torecent acquisition and dispositions within the
Selling, general and administrative expenses for our InsuranceFinancial Services segment were $330.1$13.5 million for the nine months ended September 30, 2019 compared2020 compared to $163.3 million for the nine months ended September 30, 2018, an increase of $166.8 million or 102.2%. Our litigation reserve related to the $Xactware Solutions, Inc. Patent Litigation accounted for the increase of $125.0 million. Our acquisition-related costs (earn-out) accounted for an increase of $22.5 million. Our recent acquisitions accounted for an increase of $5.3 million primarily related to salaries and employee benefits. The remaining SGA increased $14.0 million or 8.6% primarily due to increases in salaries and employee benefits of $12.7 million, information technology expenses of $2.2 million, and professional consulting costs of $0.1 million; these increases were partially offset by a decrease in other general expenses of $1.0 million.
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 professional consulting costsfor the three months ended September 30, 2019. The increase of $0.9$6.2 million and information technology expenseswas related to a loss generated from the sale of $0.3 million; these increases were partially offset byour retail analytics solution business for the three months ended September 30, 2019.
Other operating loss (income) was a decrease in other general expensesgain of $0.5 million.
EBITDA Margin
EBITDA for our Financial Services segment was $37.6 million for the nine months ended September 30, 2018. The EBITDA margin for our Energy and Specialized Markets segment was 25.3%2020 compared to $35.4 million for the nine months ended September 30, 2019 compared to 30.3%2019. The EBITDA margin for our Financial Services segment was 31.7% for the nine months ended September 30, 2018.2020 compared to 27.1% for the nine months ended September 30, 2019. The decreaseincrease in EBITDA margin was primarily related to acquisition-related costs (earn-out)the gain on sale of our data warehouse business, a reduction in travel expenses as a result of COVID-19, and higher accelerated vesting of equity awards granted to employees at age 62cost discipline for the nine months ended September 30, 2019.
.
Liquidity and Capital Resources
As of September 30, 20192020 and December 31, 2018,2019, we had cash and cash equivalents and available-for-saleavailable-for-sale securities of $315.2$225.5 million and $142.8$188.2 million, respectively. Subscriptions for our solutions are billed and generally paid in advance of rendering services either quarterly or in full upon commencement of the annual or multi-year subscription period, in annual amounts. Most of our subscriptionswhich is usually for one year. Subscriptions are automatically renewed at the beginning of each calendar year. We have historically generated significant cash flows from operations. As a result of this factor, as well as the availability of funds under our $1,000.0 million Credit Facility, we believeexpect that we will have sufficient cash to meet our working capital and capital expenditure needs and to fuel our future growth plans.
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 thosethese businesses, our cash position is favorably affected by revenue growth, which results in a source of cash due to our customers prepaying for most of our services.
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, 20192020 and 2018,2019, we repurchased $298.8 million and $200.0 million, and $282.2 millionrespectively, of our common stock,stock. For the nine months ended September 30, 2020 and 2019, we also paid dividends of $131.8 million and $122.7 million, respectively.
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 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, and we incurred debt issuance costs of $5.7 million. The original issue discount and debt issuance costs will be amortized over the life of the 2050 notes. The net proceeds from the issuance of the 2050 notes were utilized for general corporate purposes, including to partially repay the Credit Facility. The indenture governing the 2050 notes restricts our ability to, among other things, create certain liens, enter into sale/leaseback transactions and consolidate with, sell, lease, convey or otherwise transfer all or substantially all of our assets, or merge with or into, any other person or entity.
We had total short-term and long-term debt, excluding finance lease liabilities, unamortized discounts and the original issue discounts, original issue premiumspremium, and debt issuance costs on our senior notes and credit facility, of $2,660.0$3,150.0 million and $2,715.0 million$3,145.0 million at September 30, 20192020 and December 31, 2018, respectively. As of September 30, 2019, respectively, and we were in compliance with our financial and other debt covenants.
As of September 30, 2020, we entered into the Fourth Amendment, or the "Amendment" to thehad 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 the Northern Trust Company, which reduced the borrowing capacity from $1,500.0 million to $1,000.0 million, extended the maturity date to August 15, 2024, and amended the pricing grid. Interest on borrowings under the Amendment is payable at an interest rate of LIBOR plus 1.0% to 1.625%, depending upon the public debt rating. A commitment fee on any unused balance is payable periodically and may range from 8.0 to 20.0 basis points based upon the public debt rating. The Amendment also contains
We have started to considerare 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 this ratethese 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, whichthat 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. WeShould we amend our Credit Facility to reflect SOFR, based on recent borrowings and applicable SOFR, we do not anticipate this to have a material impact on the business given the recent outstanding borrowing amount drawn under the Credit Facility. We will continue to monitor the application of the suggested alternative rate to LIBOR to ensure any risk identified is fully understood and appropriately addressed. Additionally, we will ensure that once the applicable alternative rate has been finalized that it is accurately documented contractually.
As of September 30, 20192020 and December 31, 2018,2019, the available capacity under the CreditCredit Facility was $984.8 million and $1,078.9$994.8 million and $500.2 million, net of the letters of credit of $5.2 million and $6.1 million,$4.8 million, respectively. We had no outstanding borrowings under the Credit Facility of $10.0 million and $415.0 million, respectively, as of September 30, 20192020 and had $495.0 million as of December 31, 2018.2019. During the nine months ended September 30, 2019,2020, we had borrowingsborrowings of $345.0$265.0 million and repayments of $750.0$760.0 million underunder the Credit Facility. In connection with the Amendment, we incurred additional debt issuance costs of $0.6 million, which will be amortized to "Interest expense" within the accompanying condensed consolidated statements of operations over the remaining life of the Credit Facility. In addition, due to the reduction in the available capacity as part of the Amendment, previously capitalized debt issuance costs of $0.7 million were written off and recorded to "Interest expense" within the accompanying condensed consolidated statements of operations during the three and nine months ended September 30, 2019. Subsequent to September 30, 2019, we had borrowings of $250.0 million and repayments of $10.0 million under the Credit Facility.
Cash Flow
The following table summarizes our cash flow data :
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||
2020 | 2019 | Percentage change | 2020 | 2019 | Percentage change | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Net cash provided by operating activities | $ | 207.1 | $ | 213.6 | (3.0 | )% | $ | 819.2 | $ | 779.9 | 5.0 | % | ||||||||||||
Net cash used in investing activities | $ | (219.0 | ) | $ | (106.4 | ) | 105.8 | % | $ | (364.7 | ) | $ | (274.5 | ) | 32.9 | % | ||||||||
Net cash (used in) provided by financing activities | $ | (76.5 | ) | $ | 51.4 | (248.8 | )% | $ | (418.9 | ) | $ | (334.8 | ) | 25.1 | % | |||||||||
| Three Months Ended | Percentage Change | Nine Months Ended | Percentage Change | ||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||
| (in millions) | |||||||||||||||||||||
| Net cash provided by operating activities | $ | 213.6 | $ | 226.6 | (5.7 | )% | $ | 779.9 | $ | 761.0 | 2.5 | % | |||||||||
| Net cash (used in) provided by investing activities | $ | (106.4 | ) | $ | 66.2 | (260.7 | )% | $ | (274.5 | ) | $ | (103.8 | ) | 164.5 | % | ||||||
| Net cash provided by (used in) financing activities | $ | 51.4 | $ | (271.4 | ) | (118.9 | )% | $ | (334.8 | ) | $ | (648.5 | ) | (48.4 | )% | ||||||
Operating Activities
Net cash provided by operating activities was $213.6$207.1 million for the three months ended September 30, 20192020 compared to $226.6$213.6 million for the three months ended September 30, 2018. 2019. The decrease in cash provided by operating activities for the three months ended September 30, 20192020 was primarily due to a deferral of federal income tax payments from the second quarter 2020 to the third quarter 2020, partially offset by the deferral of certain employer payroll taxes resulting from the CARES Act, as well as an increase in income tax payments resulting fromcustomer collections, and a reduction in stock options exercised during the three months ended September 30, 2019 compared with the three months ended September 30, 2018,travel payments as well as the timinga result of certain operating expense payments. Certain vendors that were paid in the fourth quarter of 2018 were paid in the third quarter of 2019.
Net cash provided by operating activities was $779.9$819.2 million for the nine months ended September 30, 20192020 compared to $761.0$779.9 million for the nine months ended September 30, 2018.2019. The increase in net cash provided by operating activities was primarily related to an increase in cash receiptscustomer collections, a reduction in travel payments as a result of COVID-19, as well as a deferral of certain employer payroll taxes resulting from customers driventhe CARES Act, partially offset by an increase in revenues and operating profit. This increase was mitigated by an increase inincome tax income payments resulting from a reduction in stock options exercised during fiscal year 2019 compared to fiscal year 2018.
Investing Activities
Net cash used in investing activities of $106.4$219.0 million for the three months ended September 30, 2020 was primarily related to acquisitions, including associated escrow funding, of $159.9 million and capital expenditures of $64.8 million. Net cash used in investing activities of $106.4 million for the three months ended September 30, 2019 was primarily related to capital expenditures of $60.7 million and acquisitions, including associated escrow funding, of $44.9 million. Net cash provided by investing activities of $66.2 million for the three months ended September 30, 2018 was primarily related to the proceeds from the repayment of the subordinated promissory note associated with the sale of our healthcare business of $121.4 million, partially offset by capital expenditures of $55.2 million. The increase in capital expenditures of $5.5 million for the three months ended September 30, 2019 compared to the three months ended September 30, 2018 was primarily related to an increase in software development costs related to new and existing solutions, partially offset by a decrease in the purchase of aircraft and sensors.
Net cash used in investing activities of $364.7 million for the nine months ended September 30, 2020 was primarily related to capital expenditures of $174.4 million, acquisitions, including associated escrow funding, of $159.9 million and the disposed business and cash of $63.8 million in exchange for a non-controlling 35.0% ownership interest in the nonpublic company Vexcel Group, Inc ("Vexcel"), partially offset by proceeds of $23.1 million from the sale of our compliance background screening business. Net cash used in investing activities of $274.5 million for the nine months ended September 30, 2019 was primarily related to capital expenditures of $152.8 million and acquisitions, including associated escrow funding, of $114.0 million. Net
Financing Activities
Net cash used in investingfinancing activities of $103.8$76.5 million for the ninethree months ended September 30, 20182020 was primarily related to capital expendituresdriven by repurchases of $154.5common stock of $50.0 million and acquisitions, including associated escrow funding,dividend payments of $67.7$43.9 million, partially offset by proceeds from the repaymentstock options exercised of the subordinated promissory note associated with the sale of our healthcare business of $121.4$26.0 million. The decrease in capital expenditures of $1.7 million for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 was primarily related to a decrease in the purchase of aircraft and sensors, partially offset by an increase in software development costs related to new and existing solutions.
Net cash used in financing activities of $271.4$418.9 million for the threenine months ended September 30, 20182020 was primarily related todriven by net debt repayments on our Credit facilityFacility of $195.0$495.0 million, and repurchases of common stock of $102.8$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 $27.7$68.3 million.
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 19, 201918, 2020 except as noted below.
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 post retirementpostretirement benefits, stock based compensation, income taxes and allowance for doubtful accounts. Actual results may differ from these assumptions or conditions. Some of the judgments that management makes in applying its accounting estimates in these areas are discussed under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K dated and filed with the Securities and Exchange Commission on February 19, 2019.18, 2020. Since the date of our annual report on Form 10-K, there have been no material changes to our critical accounting policies and estimates other than the items noted below.
Quantitative and Qualitative Disclosures About Market Risk Market risks at September 30, Controls and Procedures Disclosure Controls and Procedures We are required to maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act” Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this quarterly report on Form 10-Q. Based upon the foregoing assessments, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, Changes in Internal Control over Financial Reporting During the three months ended September 30, Legal Proceedings We are party to legal proceedings with respect to a variety of matters in the ordinary course of business. See Part I Item 1. Note | ||||||||||||||||||||