Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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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 ("2021 10-K") dated and filed with the Securities and Exchange Commission on February 22, 2022. This discussion contains forward-looking statements that involve risks and uncertainties. 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 2021 10-K and those listed under Item 1A in Part II of this quarterly report on Form 10-Q.

We are a leading data analytics provider serving customers in insurance and energy. 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, global risk analytics, natural resources intelligence, economic forecasting, and many other fields. In the United States ("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 the comprehensive package. These solutions take various forms, including data, statistical models, or 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. On March 11, 2022, we sold our environmental health and safety business, which represented the "specialized markets" in our Energy and Specialized Markets segment. On April 8, 2022, the sale of our Financial Services segment was also completed. See Note 7. Dispositions for further discussion. For the remainder of 2022, we will continue to show only the historical results of these dispositions in their respective previous operating segments. Our Insurance segment provides underwriting and rating, and claims insurance data for the P&C insurance industry, primarily in the U.S. This segment's revenues represented approximately 80% and 73% of our revenues for the nine months ended September 30, 2022 and September 30, 2021, respectively. Our Energy and Specialized Markets segment provides research and consulting data analytics for the global energy, chemicals, and metals and mining industries. In the first quarter, we sold our environmental health and safety business. Our Energy and Specialized Markets segment's revenues represented approximately 19% and 22% of our revenues for the nine months ended September 30, 2022 and September 30, 2021, respectively. Our Financial Services segment provided 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 represented approximately 1% and 5% of our revenues for the nine months ended September 30, 2022 and September 30, 2021, respectively. On April 8, 2022, we sold our Financial Services segment to TransUnion.   

Executive Summary

Key Performance Metrics

We believe our business's ability to grow 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 and EBITDA growth as metrics to measure our performance. EBITDA and EBITDA margin are non-GAAP financial measures (See footnote 2 within the Condensed Consolidated Results of Operations section of Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations). The nearest equivalent respective GAAP financial measures are net income and net income margin.

Revenue growth. We use year-over-year revenue growth as a key performance metric. We assess revenue growth based on our ability to generate increased revenue through increased sales to existing customers, sales to new customers, sales of new or expanded solutions to existing and new customers, and strategic acquisitions of new businesses.

EBITDA growth. We use EBITDA growth as a measure of our ability to balance the size of revenue growth with cost management and investing for future growth. EBITDA growth allows for greater transparency regarding our operating performance and facilitate period-to-period comparison.

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 calculate EBITDA margin as EBITDA divided by revenues.

Revenues

We earn revenues through agreements for hosted subscriptions, advisory/consulting services, and for transactional solutions, recurring and non-recurring. Subscriptions for our solutions are generally paid in advance of rendering services either quarterly or in full upon commencement of the subscription period, which is usually for one year and automatically renewed each year. As a result, the timing of our cash flows generally precedes our recognition of revenues and income and our cash flow from operations tends to be higher in the first quarter as we receive subscription payments. Examples of these arrangements include subscriptions that allow our customers to access our standardized coverage language, our claims fraud database, or our actuarial services throughout the subscription period. In general, we experience minimal revenue seasonality within the business.

 Approximately 81% of the revenues in our Insurance segment for the nine months ended September 30, 2022 and 2021 were derived from hosted subscriptions through 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 82% and 83% of the revenues in our Energy and Specialized Markets segment for the nine months ended September 30, 2022 and 2021, respectively, were derived from hosted subscriptions with long-term agreements for our solutions. Our customers in this segment include most of the top 10 global energy providers. Approximately 85% and 84% of the revenues in our Financial Services segment for the nine months ended September 30, 2022 and 2021, respectively, were derived from subscriptions with long-term agreements for our solutions. Our customers in this segment included financial institutions, payment networks and processors, alternative lenders, regulators, merchants, and 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, 2022 and 2021, approximately 19% of our consolidated revenues were derived from providing transactional and advisory/consulting 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 58% of our total operating expenses (excluding the net gain on the sale of our environmental health and safety business and our Financial Services segment) for the nine months ended September 30, 2022 and 2021, 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, salespeople, 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 communications are also allocated to selling, general and administrative expenses based on the nature of the work being performed by the employee. Our selling, general and administrative expenses exclude depreciation and amortization.

Condensed Consolidated Results of Operations

		Three Months Ended												Nine Months Ended
		September 30,								Percentage				September 30,								Percentage
		2022				2021				Change				2022				2021				Change
		(in millions, except for share and per share data)
Statement of income data:
Revenues:
Insurance		$	610.1			$	557.9				9.4	%		$	1,806.5			$	1,643.5				9.9	%
Energy and Specialized Markets			135.2				165.9				(18.5	)%			423.0				484.4				(12.7	)%
Financial Services			—				35.2				(100.0	)%			37.6				104.7				(64.1	)%
Revenues			745.3				759.0				(1.8	)%			2,267.1				2,232.6				1.5	%
Operating expenses (income):
Cost of revenues (exclusive of items shown separately below)			246.7				265.3				(7.0	)%			773.3				792.6				(2.4	)%
Selling, general and administrative			125.9				115.1				9.4	%			387.1				346.3				11.8	%
Depreciation and amortization of fixed assets			51.7				52.1				(0.8	)%			151.1				153.9				(1.8	)%
Amortization of intangible assets			36.6				37.6				(2.7	)%			121.0				133.1				(9.1	)%
Other operating loss (income), net			7.8				—				—	%			(353.7	)			—				—	%
Total operating expenses, net			468.7				470.1				(0.3	)%			1,078.8				1,425.9				(24.3	)%
Operating income			276.6				288.9				(4.3	)%			1,188.3				806.7				47.3	%
Other income (expense):
Investment income (loss)			3.1				0.1				3,000.0	%			7.4				1.3				469.2	%
Interest expense			(34.5	)			(29.9	)			15.4	%			(97.6	)			(96.8	)			0.8	%
Total other expense, net			(31.4	)			(29.8	)			5.4	%			(90.2	)			(95.5	)			(5.5	)%
Income before income taxes			245.2				259.1				(5.4	)%			1,098.1				711.2				54.4	%
Provision for income taxes			(55.7	)			(54.2	)			2.8	%			(205.0	)			(186.7	)			9.8	%
Net income			189.5				204.9				(7.5	)%			893.1				524.5				70.3	%
Less: Net (income) loss attributable to noncontrolling interests			(0.1	)			(3.2	)			(96.9	)%			(0.3	)			(0.2	)			50.0	%
Net income attributable to Verisk		$	189.4			$	201.7				(6.1	)%		$	892.8			$	524.3				70.3	%
Basic net income per share attributable to Verisk:		$	1.21			$	1.25				(3.2	)%		$	5.63			$	3.24				73.8	%
Diluted net income per share attributable to Verisk:		$	1.20			$	1.24				(3.2	)%		$	5.59			$	3.21				74.1	%
Cash dividends declared per share (1):		$	0.31			$	0.29				6.9	%		$	0.93			$	0.87				6.9	%
Weighted average shares outstanding:
Basic			156,940,608				161,366,544				(2.7	)%			158,531,439				162,005,382				(2.1	)%
Diluted			157,978,606				162,792,791				(3.0	)%			159,580,262				163,425,349				(2.4	)%
The financial operating data below sets forth the information we believe is useful for investors in evaluating our overall financial performance:
Other data:
EBITDA:
Insurance		$	329.3			$	311.5				5.7	%		$	965.5			$	911.2				6.0	%
Energy and Specialized Markets			40.1				60.5				(33.7	)%			589.1				171.8				242.9	%
Financial Services			(1.4	)			6.7				(120.9	)%			(86.8	)			12.0				(823.3	)%
EBITDA(2)		$	368.0			$	378.7				(2.8	)%		$	1,467.8			$	1,095.0				34.0	%
The following is a reconciliation of net income to EBITDA:
Net income		$	189.5			$	204.9				(7.5	)%		$	893.1			$	524.5				70.3	%
Depreciation and amortization of fixed assets and intangible assets			88.3				89.7				(1.6	)%			272.1				287.0				(5.2	)%
Interest expense			34.5				29.9				15.4	%			97.6				96.8				0.8	%
Provision for income taxes			55.7				54.2				2.8	%			205.0				186.7				9.8	%
EBITDA		$	368.0			$	378.7				(2.8	)%		$	1,467.8			$	1,095.0				34.0	%

(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.

(2)

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 14. of our condensed consolidated financial statements included in this quarterly report on Form 10-Q. 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, 2022 Compared to Three Months Ended September 30, 2021

Revenues

Revenues were $745.3 million for the three months ended September 30, 2022 compared to $759.0 million for the three months ended September 30, 2021, a decrease of $13.7 million or 1.8%. Our recent acquisitions (Ignite Software Systems Limited, Data Driven Safety, LLC, Infutor Data Solutions, LLC, and Opta Information Intelligence Corp. within the underwriting & rating category of the Insurance segment, ACTINEO GmbH, Automated Insurance Solutions Ltd. and Pruvan, Inc., within the claims category of the Insurance segment) and dispositions (environmental health and safety business within the Energy and Specialized Markets segment and the Financial Services segment) contributed a net decrease of $36.1 million. The remaining movement in our consolidated revenue increased $22.4 million or 3.2% related to the following: revenues within our Insurance segment increased $24.3 million or 4.4%; and revenues within our Energy and Specialized Markets segment decreased $1.9 million or 1.4%. Refer to the Results of Operations by Segment within this section for more information regarding our revenues. 

		Three Months Ended September 30,								Percentage				Percentage change excluding
		2022				2021				change				recent acquisitions and dispositions
		(in millions)
Insurance		$	610.1				557.9				9.4	%			4.4	%
Energy and Specialized Markets			135.2				165.9				(18.5	)%			(1.4	)%
Financial Services			—				35.2				(100.0	)%			—	%
Total Revenues		$	745.3			$	759.0				(1.8	)%			3.2	%

Cost of Revenues

Cost of revenues was $246.7 million for the three months ended September 30, 2022 compared to $265.3 million for the three months ended September 30, 2021, a decrease of $18.6 million or 7.0%. Our recent acquisitions and dispositions accounted for the decrease of $18.6 million in cost of revenues. The remaining cost of revenues consists of increases in information technology expenses of $3.9 million, salaries and employee benefits of $1.5 million, and travel expenses of $1.4 million; fully offset by decreases in professional consulting costs of $2.7 million, data costs of $2.1 million, and other operating costs of $2.0 million.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SGA") were $125.9 million for the three months ended September 30, 2022 compared to $115.1 million for the three months ended September 30, 2021, an increase of $10.8 million or 9.4%. Our recent acquisitions and dispositions accounted for the increase of $0.3 million in SGA primarily related to salaries and employee benefits. Our acquisition-related costs (earn-outs) accounted for an increase of $7.6 million. The remaining SGA increase of $2.9 million or 2.6% was primarily due to increases of salaries and employee benefits of $1.4 million, travel expenses of $1.1 million, professional consulting costs of $0.5 million, and other operating costs of $0.7 million; offset by a decrease in information technology expenses of $0.8 million.

Depreciation and Amortization of Fixed Assets

Depreciation and amortization of fixed assets $51.7 million for the three months ended September 30, 2022 compared to $52.1 million for the three months ended September 30, 2021, a decrease of $0.4 million or 0.8%. The decrease was primarily driven by recent dispositions of $5.8 million, partially offset by $5.2 million attributed to assets placed into service to support data capacity expansion and revenue growth and $0.2 million related to recent acquisitions.

Amortization of Intangible Assets

Amortization of intangible assets $36.6 million for the three months ended September 30, 2022 compared to $37.6 million for the three months ended September 30, 2021, a decrease of $1.0 million or 2.7%. The decrease was primarily driven by intangible assets that were fully amortized for the three months ended September 30, 2022 of $1.0 million and recent dispositions of $6.6 million, partially offset by additional amortization of intangible assets incurred in connection with our recent acquisitions of $6.6 million.

Other Operating Loss, net

Other operating loss, net was $7.8 million for the three months ended September 30, 2022 compared to $0.0 million for the three months ended September 30, 2021. The loss was incurred as part of true up of the closing adjustments related to the dispositions within the former Energy and Specialized Markets and the Verisk Financial Services segments. 

Investment Income (Loss)

Investment income (loss) was a gain of $3.1 million for the three months ended September 30, 2022 compared to a loss of $0.1 million for the three months ended September 30, 2021. The increase was primarily due to impact of foreign currencies.

Interest Expense

Interest expense was $34.5 million for the three months ended September 30, 2022 compared to $29.9 million for the three months ended September 30, 2021, an increase of $4.6 million or 15.4%. The increase in interest expense was primarily due to increased borrowings and higher interest rates on our Revolving Credit Facility, and the addition of a Term Loan Facility during the first quarter of 2022, partially offset by the maturity of our 4.125% senior notes.

Provision for Income Taxes

The provision for income taxes was $55.7 million for the three months ended September 30, 2022 compared to $54.2 million for the three months ended September 30, 2021, an increase of $1.5 million or 2.7%. The effective tax rate was 22.7% for the three months ended September 30, 2022 compared to 20.9% for the three months ended September 30, 2021. The effective tax rate for the three months ended September 30, 2022 was higher than the effective tax rate for the three months ended September 30, 2021 primarily due to the impact of reduced stock option exercises resulting in lower tax benefits from equity compensation in the current period versus the prior period. The difference between statutory tax rates and our effective tax rate is primarily due to tax benefits attributable to equity compensation, offset by additional state and local taxes. 

Net Income Margin 

The net income margin was 25.4% for the three months ended September 30, 2022 compared to 27.0% for the three months ended September 30, 2021. The decrease in net income margin was primarily due to the dispositions within the former Energy and Specialized Markets and Verisk Financial Services segments, including the loss incurred as part of the true up of the closing adjustments.

EBITDA Margin [1]

The EBITDA margin for our consolidated results was 49.4% for the three months ended September 30, 2022 compared to 49.9% for the three months ended September 30, 2021. The decrease in EBITDA margin was primarily driven by a loss incurred as part of true up of the closing adjustments related to dispositions within the former Energy and Specialized Markets and the Verisk Financial Services segments.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

Revenues

Revenues were $2,267.1 million for the nine months ended September 30, 2022 compared to $2,232.6 million for the nine months ended September 30, 2021, an increase of $34.5 million or 1.5%. Our recent acquisitions (Ignite Software Systems Limited, Data Driven Safety, LLC, Infutor Data Solutions, LLC, and Opta Information Intelligence Corp. within the underwriting & rating category of the Insurance segment, ACTINEO GmbH, Automated Insurance Solutions Ltd. and Pruvan, Inc., within the claims category of the Insurance segment) and dispositions (environmental health and safety business within the Energy and Specialized Markets segment and the Financial Services segment) contributed a net decrease of $49.6 million in revenues. The remaining movement in our consolidated revenue increased $84.1 million or 4.1% related to the following: revenues within our Insurance segment increased $87.5 million or 5.3%; and revenues within our Energy and Specialized Markets segment decreased $3.4 million or 0.9%. Refer to the Results of Operations by Segment within this section for more information regarding our revenues. 

		Nine Months Ended September 30,								Percentage				Percentage change excluding
		2022				2021				change				recent acquisitions and dispositions
		(in millions)
Insurance		$	1,806.5				1,643.5				9.9	%			5.3	%
Energy and Specialized Markets			423.0				484.4				(12.7	)%			(0.9	)%
Financial Services			37.6				104.7				(64.1	)%			—	%
Total Revenues		$	2,267.1			$	2,232.6				1.5	%			4.1	%

Cost of Revenues

Cost of revenues was $773.3 million for the nine months ended September 30, 2022 compared to $792.6 million for the nine months ended September 30, 2021, a decrease of $19.3 million or 2.4%. Our recent acquisitions and dispositions accounted for a decrease of $33.6 million in cost of revenues. The remaining cost of revenues increased $14.3 million or 2.1% primarily due to increases in information technology expenses of $13.1 million, salaries and employee benefits of $8.9 million, and travel expenses of $4.4 million; offset by decreases in data costs of $5.4 million, professional consulting costs of $2.3 million, and other operating costs of $4.4 million.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SGA") were $387.1 million for the nine months ended September 30, 2022 compared to $346.3 million for the nine months ended September 30, 2021, an increase of $40.8 million or 11.8%. Our recent acquisitions and dispositions accounted for a net increase of $12.9 million in SGA primarily related to salaries and employee benefits and transaction costs. Our acquisition-related costs (earn-outs) accounted for an increase of $7.6 million. The remaining SGA increase of $20.3 million or 6.4% was primarily due to increases in salaries and employee benefits of $11.8 million, travel expenses of $4.4 million, professional consulting costs of $4.1 million, and information technology expenses of $1.4 million; offset by a decrease in other operating costs of $1.4 million.

Depreciation and Amortization of Fixed Assets

Depreciation and amortization of fixed assets was $151.1 million for the nine months ended September 30, 2022 compared to $153.9 million for the nine months ended September 30, 2021, a decrease of $2.8 million or 1.8%. The decrease was primarily driven by recent dispositions of $14.7 million, partially offset by $11.4 million attributed to assets placed into service to support data capacity expansion and revenue growth and $0.5 million related to recent acquisitions.

Amortization of Intangible Assets

Amortization of intangible assets was $121.0 million for the nine months ended September 30, 2022 compared to $133.1 million for the nine months ended September 30, 2021, a decrease of $12.1 million or 9.1%. The decrease was primarily driven by intangible assets that were fully amortized for the three months ended September 30, 2022 of $13.6 million and recent dispositions of $17.2 million, partially offset by additional amortization of intangible assets incurred in connection with our recent acquisitions of $18.7 million.

Other Operating Income, net

Other operating income, net was $353.7 million for the nine months ended September 30, 2022 compared to $0.0 million for the nine months ended September 30, 2021. The increase was primarily driven by the net gain from our dispositions within our former Energy and Specialized Markets and Verisk Financial Services segments.

Investment Income (Loss)

Investment income was a gain of $7.4 million for the nine months ended September 30, 2022 compared to a gain of $1.3 million for the nine months ended September 30, 2021. The increase was primarily due to impact of foreign currencies.

Interest Expense

Interest expense was $97.6 million for the nine months ended September 30, 2022 compared to $96.8 million for the nine months ended September 30, 2021, a decrease of $0.8 million or 0.8%. The increase in interest expense was primarily due to increased borrowings and higher interest rates on our Revolving Credit Facility, and the addition of a Term Loan Facility during the first quarter of 2022, partially offset by the maturity of our 4.125% senior notes.

Provision for Income Taxes

The provision for income taxes was $205.0 million for the nine months ended September 30, 2022 compared to $186.7 million for the nine months ended September 30, 2021, an increase of $18.3 million or 9.8%. The effective tax rate was 18.7% for the nine months ended September 30, 2022 compared to 26.3% for the nine months ended September 30, 2021. The effective tax rate for the nine months ended September 30, 2022 was lower than the effective tax rate for the nine months ended September 30, 2021 primarily due to the deferred tax impact of the tax rate increase in the United Kingdom that was enacted and recorded in the prior period. The effective tax rate for the nine months ended September 30, 2022 was also lower than the prior period due to a tax rate benefit in connection with the sale of our environmental health and safety business for which a benefit was recognized for the difference between book and tax basis of our investment. The difference between statutory tax rates and our effective tax rate is primarily due to tax benefits attributable to equity compensation, offset by additional state and local taxes.

Net Income Margin 

The net income margin was 39.4% for the nine months ended September 30, 2022 compared to 23.5% for the nine months ended September 30, 2021. The increase in net income margin was primarily driven by the net gain from our dispositions within the former Energy and Specialized Markets and the Verisk Financial Services segments, as well as a lower effective tax rate as described above.

EBITDA Margin [1]

The EBITDA margin for our consolidated results was 64.7% for the nine months ended September 30, 2022 compared to 49.0% for the nine months ended September 30, 2021. The increase in EBITDA margin was primarily driven by the net gain from dispositions within the former Energy and Specialized Markets and the Verisk Financial Services segments, which positively impacted our margin by 15.3%. 

[1] Note: Consolidated EBITDA margin, a non-GAAP measure, is calculated as a percentage of consolidated revenue. A reconciliation from net income to EBITDA is presented in the table below.

		Three Months Ended September 30,								Nine Months Ended September 30,
		2022				2021				2022				2021
		Total				Total				Total				Total
Net income		$	189.5			$	204.9			$	893.1			$	524.5
Depreciation and amortization of fixed assets			51.7				52.1				151.1				153.9
Amortization of intangible assets			36.6				37.6				121.0				133.1
Interest expense			34.5				29.9				97.6				96.8
Provision for income taxes			55.7				54.2				205.0				186.7
EBITDA		$	368.0			$	378.7			$	1,467.8			$	1,095.0
Revenue		$	745.3			$	759.0			$	2,267.1			$	2,232.6
EBITDA Margin			49.4	%			49.9	%			64.7	%			49.0	%

Results of Operations by Segment

On April 8, 2022, the sale of our Financial Services segment was completed, as such, it has been excluded from the results of operations by segment. For more information, please refer to Note 7. Dispositions.

Insurance

Revenues

Revenues for our Insurance segment were $610.1 million for the three months ended September 30, 2022 compared to $557.9 million for the three months ended September 30, 2021, an increase of $52.2 million or 9.4%. Our underwriting & rating revenue increased $45.7 million or 11.7%. Our claims revenue increased $6.5 million or 3.9%.

Our revenue by category for the periods presented is set forth below:

		Three Months Ended September 30,								Percentage				Percentage change excluding
		2022				2021				change				recent acquisitions
		(in millions)
Underwriting & rating		$	436.2			$	390.5				11.7	%			5.5	%
Claims			173.9				167.4				3.9	%			1.7	%
Total Insurance		$	610.1			$	557.9				9.4	%			4.4	%

Our recent acquisitions (Whitespace Software Limited, Ignite Software Systems Limited, Data Driven Safety, LLC, ACTINEO GmbH, Infutor Data Solutions, LLC, and Opta Information Intelligence Corp.) contributed revenues of $27.9 million and the remaining Insurance revenue increased $24.3 million or 4.4%. Our underwriting & rating revenue increased $21.5 million or 5.5%, primarily due to an annual increase in prices derived from 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, extreme event solutions and our life solutions contributed to the growth. Our claims revenue increased $2.8 million or 1.7%, primarily due to growth in our claims analytics and workers' compensation claims.

Revenues for our Insurance segment were $1,806.5 million for the nine months ended September 30, 2022 compared to $1,643.5 million for the nine months ended September 30, 2021, an increase of $163.0 million or 9.9%. Our underwriting & rating revenue increased $134.0 million or 11.6%. Our claims revenue increased $29.0 million or 5.9%.

Our revenue by category for the periods presented is set forth below:

		Nine Months Ended September 30,								Percentage				Percentage change excluding
		2022				2021				change				recent acquisitions
		(in millions)
Underwriting & rating		$	1,290.0			$	1,156.0				11.6	%			6.0	%
Claims			516.5			$	487.5				5.9	%			3.7	%
Total Insurance		$	1,806.5			$	1,643.5				9.9	%			5.3	%

Our recent acquisitions (Whitespace Software Limited, Ignite Software Systems Limited, Data Driven Safety, LLC, ACTINEO GmbH, Infutor Data Solutions, LLC, and Opta Information Intelligence Corp.) contributed revenues of $75.5 million and the remaining Insurance revenue increased $87.5 million or 5.3%. Our underwriting & rating revenue increased $69.6 million or 6.0%, primarily due to an annual increase in prices derived from 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, extreme event solutions and our life solutions contributed to the growth. Our claims revenue increased $17.9 million or 3.7%, primarily due to growth in our claims analytics revenue and property estimating solutions.

Cost of Revenues

Cost of revenues for our Insurance segment was $192.2 million for the three months ended September 30, 2022 compared to $176.9 million for the three months ended September 30, 2021, an increase of $15.3 million or 8.6%. Our recent acquisitions within the Insurance segment represented an increase of $14.0 million in cost of revenues. The remaining cost of revenues increased $1.3 million or 0.7% primarily due to increases in information technology expenses of $3.6 million, salaries and employee benefits of $1.1 million, and travel expenses of $0.6 million. These increases were partially offset by decreases in data costs of $1.8 million, professional consulting costs of $0.3 million, and other operating costs of $1.9 million.

Cost of revenues for our Insurance segment was $576.7 million for the nine months ended September 30, 2022 compared to $522.9 million for the nine months ended September 30, 2021, an increase of $53.8 million or 10.3%. Our recent acquisitions within the Insurance segment represented an increase of $37.7 million in cost of revenues. The remaining cost of revenues increased $16.1 million or 3.1% primarily due to increases in information technology expenses of $11.6 million, salaries and employee benefits of $9.8 million, and travel expenses of $2.5 million. These increases were partially offset by decreases in data costs of $4.4 million, professional consulting costs of $0.4 million, and other operating costs of $3.0 million.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for our Insurance segment were $89.9 million for the three months ended September 30, 2022, compared to $69.4 million for the three months ended September 30, 2021, an increase of $20.5 million or 29.5%. Our recent acquisitions accounted for an increase of $10.5 million, which was primarily related to salaries and employee benefits. Our acquisition-related costs (earn-outs) accounted for an increase of $7.6 million. The remaining SGA increase of $2.4 million or 3.2% was primarily due to increases in professional consulting costs of $0.7 million, salaries and employee benefits of $0.6 million, travel expenses of $0.6 million, and other operating of $1.2 million. These increases were partially offset by a decrease in information technology expenses of $0.7 million.

Selling, general and administrative expenses for our Insurance segment were $266.8 million for the nine months ended September 30, 2022, compared to $210.8 million for the nine months ended September 30, 2021, an increase of $56.0 million or 26.6%. Our recent acquisitions accounted for an increase of $34.9 million, which was primarily related to salaries and employee benefits. Our acquisition-related costs (earn-outs) accounted for an increase of $7.6 million. The remaining SGA increase of $13.5 million or 6.2% was primarily due to increases in salaries and employee benefits of $5.0 million, travel expenses of $3.4 million, professional consulting costs of $3.4 million, information technology expenses of $1.2 million, and other operating costs of $0.5 million.

Investment Income (Loss)

Investment income was a gain of $1.3 million for the three months ended September 30, 2022 compared to a loss of $0.1 million for the three months ended September 30, 2021. This was primarily due to the impact of foreign currencies.

Investment income was a gain of $2.5 million for the nine months ended September 30, 2022 compared to a gain of $1.4 million for the nine months ended September 30, 2021. This was primarily due to the impact of foreign currencies.

EBITDA Margin

EBITDA for our Insurance segment was $965.5 million for the nine months ended September 30, 2022 compared to $911.2 million for the nine months ended September 30, 2021. The EBITDA margin for our Insurance segment was 53.4% for the nine months ended September 30, 2022 compared to 55.4% for the nine months ended September 30, 2021. The decrease in EBITDA margin was primarily due to the acquisition-related cost (earn-out) referenced above.

Energy and Specialized Markets

Revenues

Revenues for our Energy and Specialized Markets segment were $135.2 million for the three months ended September 30, 2022 compared to $165.9 million for the three months ended September 30, 2021, a decrease of $30.7 million or 18.5%. Our recent acquisition of Roskill Holdings Limited, and disposition of the environmental health and safety business, within this segment contributed a net decrease in revenues of $28.8 million. The remaining decrease in Energy and Specialized Markets revenue of $1.9 million or 1.4% was primarily due to a modest decrease in our subscription solutions related to our decision to suspend all commercial operations in Russia and a decrease in our energy consulting revenue.

Revenues for our Energy and Specialized Markets segment were $423.0 million for the nine months ended September 30, 2022 compared to $484.4 million for the nine months ended September 30, 2021, a decrease of $61.4 million or 12.7%. Our recent acquisition of Roskill Holdings Limited, and disposition of the environmental health and safety business, within this segment contributed a net decrease in revenues of $58.0 million. The remaining decrease in Energy and Specialized Markets revenue of $3.4 million or 0.9% was primarily due to increases in our subscription and consulting revenue, mitigated by the suspension of all commercial operations in Russia which negatively impacted revenue by approximately $6.8 million.

Cost of Revenues

Cost of revenues for our Energy and Specialized Markets segment was $54.5 million for the three months ended September 30, 2022 compared to $67.3 million for the three months ended September 30, 2021, a decrease of $12.8 million or 19.0%. Our recent acquisition of Roskill Holdings Limited, and disposition of the environmental health and safety business, accounted for a net decrease of $11.5 million. The remaining decrease in cost of revenues of $1.3 million or 2.4% was primarily due to decreases in professional consulting costs of $2.4 million, data costs of $0.3 million, and other operating costs of $0.1 million. These decreases were partially offset by increases in travel expenses of $0.8 million, salaries and employee benefits of $0.4 million, and information technology expenses of $0.3 million.

Cost of revenues for our Energy and Specialized Markets segment was $173.0 million for the nine months ended September 30, 2022 compared to $199.5 million for the nine months ended September 30, 2021, a decrease of $26.5 million or 13.3%. Our recent acquisition of Roskill Holdings Limited, and disposition of the environmental health and safety business, accounted for a net decrease of $24.7 million. The remaining decrease in cost of revenues of $1.8 million or 1.1% was primarily due to decreases in professional consulting costs of $1.9 million, data costs of $1.0 million, salaries and employee benefits of $0.9 million, and other operating costs of $1.4 million. These decreases were partially offset by increases in travel expenses of $1.9 million and information technology expenses of $1.5 million.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for our Energy and Specialized Markets segment were $36.0 million for the three months ended September 30, 2022 compared to $38.3 million for the three months ended September 30, 2021, an increase of $2.3 million or 6.0%. Our recent acquisition of Roskill Holdings Limited, and disposition of the environmental health and safety business, accounted for a net decrease of $2.8 million primarily related to salaries and employee benefits. The remaining increase in SGA of $0.5 million or 1.2% was primarily due to increases in salaries and employee benefits of $0.8 million, and travel expenses of $0.5 million. These increases were partially offset by a decrease in professional consulting costs of $0.2 million, information technology expenses of $0.1 million, and other operating costs of $0.5 million. 

Selling, general and administrative expenses for our Energy and Specialized Markets segment were $113.1 million for the nine months ended September 30, 2022 and 2021. Our recent acquisition of Roskill Holdings Limited, and disposition of the environmental health and safety business, accounted for a net decrease of $6.8 million primarily related to salaries and employee benefits. The remaining increase in SGA of $6.8 million or 7.0% was primarily due to increases in salaries and employee benefits of $6.8 million, travel expenses of $1.0 million, professional consulting costs of $0.7 million, and information technology expenses of $0.2 million. These increases were partially offset by a decrease in other operating costs of $1.9 million. 

Other Operating (Loss) Income

Other operating loss was $6.4 million for the three months ended September 30, 2022 compared to $0.0 million for the three months ended September 30, 2021. The decrease was primarily driven by the loss on the true up of closing adjustments from the dispositions within the former Energy and Specialized Markets segment. 

Other operating income was $447.0 million for the nine months ended September 30, 2022 compared to $0.0 million for the nine months ended September 30, 2021. The increase was primarily driven by the gain from the dispositions within the former Energy and Specialized Markets segment.

Investment Income (Loss)

Investment income (loss) was a gain of $1.8 million for the three months ended September 30, 2022 compared to a gain of $0.2 million for the three months ended September 30, 2021. This was primarily due to the impact on foreign currencies.

Investment income (loss) was a gain of $5.2 million for the nine months ended September 30, 2022 compared to $0.0 million for the nine months ended September 30, 2021. This was primarily due to the impact on foreign currencies.

EBITDA Margin

EBITDA within this segment was $589.1 million for the nine months ended September 30, 2022 compared to $171.8 million for the nine months ended September 30, 2021. The EBITDA margin within this segment was 139.3% for the nine months ended September 30, 2022 compared to 35.5% for the nine months ended September 30, 2021. The increase in EBITDA margin was primarily driven by the gain from the dispositions within the former Energy and Specialized Markets segment, which positively impacted our margin by 105.7%, offset by the suspension of all commercial operations in Russia. 

Liquidity and Capital Resources

As of September 30, 2022 and December 31, 2021, we had cash and cash equivalents and available-for-sale securities of $280.6 million and $285.3 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 subscription period, which 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 Credit Facility, we expect 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 these 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, 2022 and 2021, we repurchased $1,196.3 million and $400.0 million, respectively, of our common stock. For the nine months ended September 30, 2022 and 2021, we also paid dividends of $147.2 million and $141.0 million, respectively.

Financing and Financing Capacity

We had total debt, excluding finance lease liabilities, unamortized discounts and premium, and debt issuance costs of $3,415.0 million and $3,310.0 million at September 30, 2022 and December 31, 2021, respectively, and we were in compliance with our financial and other debt covenants.

We have a Credit Facility with a borrowing capacity of $1,000.0 million 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., First Commercial Bank, Ltd., Los Angeles Branch, TD Bank, N.A., and the Northern Trust Company. The Credit Facility may be used for general corporate purposes, including working capital needs and capital expenditures, acquisitions, dividends and the Repurchase Program. As of September 30, 2022, we were in compliance with all financial and other debt covenants under the Credit Facility. 

As of September 30, 2022 and December 31, 2021, the available capacity under the Credit Facility was $55.2 million and $384.9 million, net of the letters of credit of $4.8 million and $5.1 million, respectively. We had $940.0 million and $610.0 million in borrowings outstanding under the Credit Facility as of September 30, 2022 and December 31, 2021, respectively. Subsequent to September 30, 2022, we have made repayments of $90.0 million and secured an additional $275.0 million in additional capacity on our Credit Facility. As a result of this activity, we now have the ability to draw up to $420.2 million from our Credit Facility. 

On September 9, 2022, we extended our $125.0 million Bilateral Term Loan Agreement (the "Term Loan") with Bank of America, N.A for 12 months with an agreed maturity date of September 9, 2023. The Term Loan carries an interest rate of 135 basis points plus the one month BSBY. This loan may be used for general corporate purposes, including working capital needs and capital expenditures, acquisitions, dividend payments, and the Repurchase Program.

The new extended $125 million Term Loan and $275 million Credit Facility are now subject to the replacement of LIBOR. Interest on the Term Loan is based on BSBY and we have the choice of the Secured Overnight Financing Rate ("SOFR") or the BSBY as part of the additional Credit Facility agreement. As our only current contract that is subject to the LIBOR rate is the existing Credit Facility, the impact will be dependent on what the outstanding borrowing amount is on the Credit Facility and the relevant interest rate that will be contractually applicable. Should we amend or extend our existing Credit Facility to reflect SOFR or BSBY, based on recent borrowings and applicable SOFR, we do not anticipate such an amendment to have a material impact on the business. 

Cash Flow

The following table summarizes our cash flow data:

		Three Months Ended												Nine Months Ended
		September 30,												September 30,
		2022				2021				Percentage change				2022				2021				Percentage change
		(in millions)												(in millions)
Net cash provided by operating activities		$	280.2			$	285.2				(1.8	)%		$	810.0			$	967.1				(16.2	)%
Net cash (used in) provided by investing activities		$	(67.9	)		$	(87.7	)			(22.6	)%		$	383.2			$	(261.2	)			(246.7	)%
Net cash used in financing activities		$	(399.8	)		$	(169.2	)			136.3	%		$	(1,160.8	)		$	(617.1	)			88.1	%

Operating Activities

Net cash provided by operating activities was $280.2 million for the three months ended September 30, 2022 compared to $285.2 million for the three months ended September 30, 2021, a decrease of $5.0 million or 1.8%. The decrease in operating cash was primarily related to the dispositions within the former Energy and Specialized Markets and the Verisk Financial Services segments.

Net cash provided by operating activities was $810.0 million for the nine months ended September 30, 2022 compared to $967.1 million for the nine months ended September 30, 2021, a decrease of $157.1 million or 16.2%. The decrease is related to an increase in tax payments of $119.7 million, and the dispositions within the former Energy and Specialized Markets and Verisk Financial Services segments.

Investing Activities

Net cash used in investing activities of $67.9 million for the three months ended September 30, 2022 was primarily related to capital expenditures of $65.8 million as well as investments in nonpublic companies of $2.1 million. Net cash used in investing activities of $87.7 million for the three months ended September 30, 2021 was primarily related to capital expenditures of $61.4 million, acquisitions and purchase of controlling interest, including escrow funding associated with the acquisitions, of $20.3 million, and investments in nonpublic companies of $6.0 million. 

Net cash provided by investing activities of $383.2 million for the nine months ended September 30, 2022 was primarily related to the $1,073.3 million in proceeds from the sale 3E and Verisk Financial Services, partially offset by acquisitions, including escrow funding associated with the acquisitions, of $451.2 million, capital expenditures of $195.0 million, and investments in nonpublic companies of $43.9 million. Net cash used in investing activities of $261.2 million for the nine months ended September 30, 2021 was primarily related to capital expenditures of $183.1 million, acquisitions and purchase of controlling interest, including escrow funding associated with the acquisitions, of $56.6 million, and investments in nonpublic companies of $21.1 million.

Financing Activities

Net cash used in financing activities of $399.8 million for the three months ended September 30, 2022 was primarily driven by repayment of our $350.0 million 4.125% senior notes, repurchases of common stock of $300.0 million, and dividend payments of $48.6 million, partially offset by proceeds, net of repayments of debt under our Credit Facility, of $290.0 million, and proceeds from stock options exercised of $18.6 million. Net cash used in financing activities of $169.2 million for the three months ended September 30, 2021 was primarily driven by repurchases of common stock of $150.0 million, and dividend payments of $46.8 million, partially offset by net proceeds from our Credit Facility of $15.0 million and proceeds from stock options exercised of $23.9 million.

Net cash used in financing activities of $1,160.8 million for the nine months ended September 30, 2022 was primarily driven by repurchases of common stock of $1,196.3 million, repayment of our $350.0 million 4.125% senior notes on September 12, 2022, dividend payments of $147.2 million, and net share settlements of taxes on restricted stock of $20.4 million, partially offset by proceeds, net of repayments of debt under our Credit Facility, of $330.0 million, proceeds under our term loan facility of $125.0 million, and proceeds from stock options exercised of $111.6 million. Net cash used in financing activities of $617.1 million for the nine months ended September 30, 2021 was primarily driven by repayment of our $450.0 million 5.800% senior notes, repurchases of common stock of $400.0 million, dividend payments of $141.0 million, partially offset by net proceeds from our Credit Facility of $355.0 million and proceeds from stock options exercised of $44.9 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 22, 2022.

Critical Accounting 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 postretirement 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 22, 2022. 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.