Verisk Analytics, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019; comparisons are with the corresponding 2018 periods. Verisk provides data analytics and decision-support solutions across Insurance, Energy and Specialized Markets, and Financial Services. Amounts are in U.S. dollars.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $652.6m | $601.3m | $1,277.6m | $1,182.5m |
| Operating income | $218.3m | $212.3m | $420.7m | $406.8m |
| Net income | $150.4m | $153.5m | $284.8m | $286.5m |
| Diluted EPS | $0.90 | $0.91 | $1.71 | $1.70 |
| Operating cash flow | $200.3m | $207.3m | $566.4m | $534.2m |
| EBITDA (non-GAAP) | $297.1m | $290.5m | $578.9m | $559.3m |
Revenue increased 8.5% in Q2 and 8.0% in the first half. Excluding recent acquisitions, growth was 6.4% and 6.2%, respectively. Q2 operating margin was approximately 33.4% versus 35.3%; net margin was 23.0% versus 25.5%; EBITDA margin was 45.5% versus 48.3%. First-half margins were 32.9% operating, 22.3% net, and 45.3% EBITDA, compared with 34.4%, 24.2%, and 47.3%, respectively, in 2018.
Insurance was the largest segment: first-half revenue was $919.7m (+9.2%) and EBITDA $476.0m (+3.4%). Energy and Specialized Markets revenue was $270.6m (+5.9%) and EBITDA $75.5m (+1.0%). Financial Services revenue was $87.3m (+2.7%) and EBITDA $27.4m (+13.1%).
Cash, debt, and capital allocation
- Cash and cash equivalents were $153.3m at June 30, 2019, versus $139.5m at year-end; cash plus available-for-sale securities was $156.6m.
- Total debt on the balance sheet was $2,528.9m, including finance lease liabilities; management reported $2,520.0m excluding finance leases and specified discounts and issuance costs. The company had $1,425.2m of available capacity under its $1.5bn revolving facility and was in covenant compliance.
- First-half capital expenditures were $92.1m. The company paid $81.9m in dividends and repurchased $125.0m of shares during the first half; $302.6m remained authorized for repurchases.
- Deferred revenue was $559.9m on the balance sheet. Management says advance customer payments support cash generation and that available cash and credit capacity should cover working capital and capital needs.
Changes, outlook, and notable items
- Revenue growth was broad-based, with Insurance the strongest contributor. First-half growth included $22.2m from recent acquisitions; the CaaS acquisition added $69.1m net cash purchase price and was assigned $42.9m of goodwill.
- SG&A rose 20.7% in Q2 and 21.0% in the first half, faster than revenue. Management attributed part of the increase to acquisition earn-out costs and accelerated recognition of equity awards for employees reaching age 62. These costs, alongside a higher effective tax rate, contributed to lower net income and margins.
- Management provided no specific forward revenue or earnings guidance in the supplied filing text. It expects sufficient liquidity for operations and growth plans and notes that operating results for the first half are not necessarily indicative of full-year results.
- In March, Verisk issued $400m of 4.125% senior notes due 2029; proceeds were used partly to repay revolving-credit borrowings. It also repaid $250m of 4.875% notes due in January 2019. Total debt declined from $2,723.3m at year-end.
- ASC 842 lease accounting was adopted January 1, 2019, adding operating lease right-of-use assets and liabilities; at June 30 these were $230.6m and $258.9m, respectively.
- After quarter-end, the company agreed to acquire Keystone Aerial Surveys for approximately $30m, subject to customary closing conditions, and approved a $0.25-per-share dividend payable September 30, 2019.
- Material legal matters include patent litigation involving Xactware/Verisk, with trial scheduled to begin September 9, 2019, and the 360Value litigation. The company said it could not reasonably estimate potential liability for either matter. The court dismissed claims in the 360Value case on July 2, 2019, with some claims dismissed with leave to amend.
Key investor verification points
- Assess whether underlying revenue growth can continue, particularly in Insurance, and distinguish organic growth from acquisition contributions.
- Monitor elevated SG&A, accelerated stock-compensation expense, acquisition earn-outs, and the effect on operating and EBITDA margins.
- Review the drivers of the higher effective tax rate and the gap between revenue growth and net-income performance.
- Track debt, refinancing and interest costs, revolving-credit availability, and capital returns alongside acquisition spending.
- Follow outcomes and any financial exposure from the patent and 360Value litigation, and confirm the closing and financing of the Keystone acquisition.