Verisk Analytics, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Amounts are in U.S. dollars; financial statement amounts are in millions unless otherwise stated. Verisk is a data analytics and technology provider to the global insurance industry. Following the sale of its Energy business on February 1, 2023, Insurance is its sole operating and reportable segment.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $651.6 | $643.6 |
| Operating income | $294.1 | $622.8 |
| Income from continuing operations | $194.4 | $487.0 |
| Net income attributable to Verisk | $56.3 | $505.7 |
| Diluted EPS | $0.37 | $3.13 |
| Cash from operating activities | $365.3 | $399.6 |
| Capital expenditures | $61.2 | $60.0 |
- Insurance revenue grew 11.1% to $651.6; growth excluding recent acquisitions was 9.1%. Underwriting and rating revenue rose 10.7%, and claims revenue rose 12.1%.
- Insurance EBITDA, a non-GAAP measure, was $355.3, up 17.8%; its margin increased to 54.5% from 51.4%. Consolidated EBITDA was $355.3 versus $682.2, but the prior-year comparison includes significant disposition-related effects.
- Continuing-operations net income margin was 29.8%. The effective tax rate was 27.1%, compared with 17.4%.
- Operating cash flow declined 8.6% to $365.3. Investing activities provided $2,967.1, largely due to $3,066.4 in Energy-sale proceeds. Financing activities used $3,405.0, principally for share repurchases and debt repayments.
- At March 31, cash and cash equivalents were $231.9; total debt on the balance sheet was $2,840.5, including finance lease liabilities. The company reported $995.5 of available capacity under its $1.0 billion syndicated revolver and compliance with debt covenants.
- Current assets were $790.8 and current liabilities were $890.1. Management notes that advance subscription payments create deferred revenue and that the business has historically operated with a working-capital deficit.
Material changes and unusual items
- Verisk sold its Energy business for net cash proceeds of $3,066.4 on February 1, 2023. The sale resulted in a $128.4 loss in discontinued operations; Q1 discontinued operations reported a net loss of $138.0, versus $18.8 of income in Q1 2022.
- Q1 2022 results included a $377.1 net operating gain, primarily from the sale of the environmental health and safety business, partly offset by a $73.7 impairment of Financial Services long-lived assets. These items materially distort comparisons of operating income, net income, margins, and consolidated EBITDA.
- Consolidated revenue increased only 1.2%, partly because prior-year revenue included businesses subsequently sold. The filing reports 9.1% growth excluding recent acquisitions and dispositions.
- Verisk repurchased $2.5 billion of shares in Q1, funded with Energy-sale proceeds; $941.3 remained available under its repurchase authorization at quarter-end. The company paid $49.2 in dividends and declared a quarterly dividend of $0.34 per share. A $19.1 stock-repurchase excise tax was recorded.
- In March, Verisk issued $500.0 principal amount of 5.75% senior notes due 2033. Mavera, a Sweden-based claims technology company, was acquired in February for a net cash purchase price of $28.3.
Outlook, risks, and contingencies
- No specific revenue, earnings, or cash-flow guidance is provided in the filing. Management expects available cash and credit capacity, together with operating cash flows, to be sufficient for working capital, capital expenditures, and growth plans. Subscription payments are generally received in advance; management notes that operating cash flow tends to be higher in Q1.
- Management describes revenue growth, EBITDA growth, and EBITDA margin as key performance measures, and expects to invest in new solutions and businesses while seeking to grow personnel expenses more slowly than revenue.
- After quarter-end, Verisk acquired German motor-claims provider SV Krug for approximately $49.5 net cash. On April 5, it extended the $1.0 billion syndicated revolver’s maturity to April 5, 2028.
- Disclosed legal matters include ERISA litigation, DOJ and SEC inquiries concerning contracts of the former Financial Services business, and data-privacy lawsuits. The company says it cannot reasonably estimate potential liability for these matters; the government inquiries are ongoing.
- The filing adds risks related to instability or failure of U.S. banks, including possible impacts on vendors, customers, operations, and access to customer payments. Management says the potential effects remain uncertain.
- Management reported effective disclosure controls as of March 31, 2023, and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Assess Insurance’s underlying growth and margin trends separately from acquisitions, divested businesses, and prior-year sale gains and impairments.
- Review the Energy-sale accounting, including the $128.4 disposal loss, discontinued-operation results, and any contingent consideration of up to $200.0.
- Evaluate the effect of the $2.5 billion repurchase program on cash, debt, outstanding shares, and future capital allocation; the March accelerated repurchase remained subject to final settlement expected in Q4 2023.
- Monitor debt levels, covenant compliance, the amended revolver terms, and the maturity of the bilateral credit facilities in September and October 2023.
- Track developments in the disclosed litigation and government inquiries, for which potential financial exposure is not presently estimable, as well as the bank-sector risk identified by the company.