Verisk Analytics, Inc. — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone fourth-quarter filing. Verisk is a data, analytics, and technology provider focused on the insurance industry. After completing the sale of its Energy business on February 1, 2023, the company reported one operating and reportable segment: Insurance. Financial amounts below are in U.S. dollars; millions unless stated otherwise.
Key financial results
| Metric | FY 2023 | FY 2022 | Change / context |
|---|---|---|---|
| Revenue | $2,681.4 | $2,497.0 | Up 7.4%; up 8.7% excluding acquisitions and businesses held for sale or disposition, as presented by the company. |
| Insurance revenue | $2,681.4 | $2,437.0 | Up 10.0%; underwriting revenue rose 9.1% and claims revenue rose 12.3%. Excluding acquisitions and dispositions, Insurance revenue increased 8.7%. |
| Operating income | $1,131.7 | $1,406.5 | Lower largely because 2022 included disposition gains. |
| Income from continuing operations | $768.4 | $1,042.1 | Down 26.3%; affected by the 2022 disposition-related tax benefits and 2023 costs, including a litigation reserve. |
| Net income attributable to Verisk | $614.6 | $953.9 | Includes losses from discontinued operations of $154.0 in 2023 and $87.8 in 2022. |
| Diluted EPS | $4.17 | $6.00 | Includes discontinued operations; diluted EPS from continuing operations was $5.22 and $6.55, respectively. |
| Net income margin | 22.9% | 38.2% | Declined amid prior-year disposition gains and current-year discontinued-operation losses and litigation expense. |
| EBITDA margin | 53.1% | 65.7% | Company-defined non-GAAP measure; prior-year results included disposition gains. Insurance segment EBITDA margin was 53.1%, versus 53.5%. |
| Operating cash flow | $1,060.7 | $1,059.0 | Essentially unchanged year over year. |
| Capital expenditures | $230.0 | $274.7 | Primarily related to software development and enhancement. |
| Cash and cash equivalents | $302.7 | $112.5 | Balance-sheet cash; the company separately reported $303.9 of cash and available-for-sale securities for 2023, including cash held for sale. |
| Debt | $2,850.0 principal | $3,740.0 principal | Excludes finance leases, discounts, premiums, and issuance costs; revolving facility had no borrowings at year-end. |
Liquidity, capital allocation, and debt
- Cash provided by investing activities was $2,746.5, principally reflecting $3,066.4 in net proceeds from the Energy sale. Cash used in financing activities was $3,786.5.
- Verisk repurchased $2,762.3 of common stock and paid $196.8 in dividends during 2023. At year-end, $641.5 remained under the $3.0 billion repurchase authorization. The board authorized an additional $1.0 billion repurchase authorization in February 2024.
- The $1.0 billion syndicated revolving credit facility was extended to April 5, 2028; available capacity at year-end was $995.4, after letters of credit. Verisk reported compliance with its debt covenants. The usual maximum funded-debt leverage covenant is 3.75 times, subject to specified temporary acquisition-related increases.
- Principal debt maturities include approximately $913.3 in 2025 and $1,950.0 in 2029 and thereafter. The filing states that prepaid subscriptions and available credit support working capital and investment needs.
Material changes and unusual items
- Energy divestiture: The February 2023 sale generated $3,066.4 in net cash proceeds, with up to $200.0 of additional contingent consideration. Verisk recorded a $128.4 loss on closing and a further $2.7 net loss from closing adjustments. The 2023 discontinued-operation loss was $154.0. The prior-year discontinued-operation results included a $303.7 impairment associated with the held-for-sale classification.
- Former Financial Services matter: Selling, general and administrative expense included a $38.2 litigation reserve expense related to indemnification of an ongoing Department of Justice inquiry. The company reported an accrued liability of approximately $39.0 and said the ultimate resolution could differ from that amount.
- Taxes: The effective tax rate rose to 25.2% from 17.5%, reflecting 2022 tax benefits tied to dispositions and a U.K. valuation allowance release, as well as 2023 Energy-sale-related tax charges and the anticipated mostly nondeductible litigation reserve.
- Acquisitions: Verisk acquired Mavera and Krug in 2023 for net cash purchase prices of $28.3 and $43.3, respectively, expanding European claims capabilities. The acquisitions contributed to comparability differences and their purchase accounting was preliminary at year-end.
Outlook, management commentary, and risks
The filing gives no numerical financial guidance for 2024. Management describes priorities of consistent growth, operating efficiency and disciplined capital allocation, including investment in core solutions, cloud technology, analytics and adjacent insurance markets. It reported continuing growth in underwriting and claims, supported by pricing, expanded solutions and demand for property estimating and anti-fraud products.
- Management noted that elevated catastrophe losses continued across the insurance industry, including record tornado-season losses in Verisk’s catastrophe measurements. Insurer conditions, catastrophe frequency and severity, and insurance-market profitability can affect demand for the company’s analytics and claims solutions.
- Inflation-related pricing resets by insurers had slowed marketing expenditure, creating short-term pressure on demand and volume for Marketing Solutions and auto underwriting solutions.
- Approximately 69% of 2023 revenue came from solutions provided to U.S. P&C primary insurers. The top 50 customers represented approximately 45% of revenue, although no individual customer exceeded approximately 3%.
- Principal risks include competition; reliance on external and customer-contributed data; privacy, regulatory and cybersecurity threats; model limitations, including uncertainty from climate change; dependence on cloud providers; acquisition integration; and execution and cost risks from the company-wide ERP implementation.
- The company reported no material effect to date from cybersecurity threats and assessed disclosure controls and internal control over financial reporting as effective. The 2023 acquisitions were excluded from management’s controls assessment because of their timing and limited scale.
- Legal matters include the DOJ inquiry and several data-privacy cases for which Verisk said liability could not yet be reasonably estimated. A separate lawsuit relating to earn-out targets in the Data Driven Safety acquisition was filed in February 2024. The SEC concluded its inquiry into certain former Financial Services contracts and did not intend to recommend an enforcement action.
Most important facts for investors to verify
- Whether underlying Insurance revenue growth remains near the reported 8.7% rate excluding acquisitions and dispositions, and how growth divides between underwriting and claims.
- The ultimate outcome and financial exposure from the DOJ inquiry and related indemnification, compared with the approximately $39.0 accrued liability and $38.2 expense.
- How catastrophe losses, insurer profitability and reduced insurer marketing spend affect customer demand, renewals and transactional volumes.
- Debt maturities, covenant headroom and the balance between buybacks, dividends, acquisitions and investment in the business.
- Execution of cloud migration and the ERP implementation, and the company’s ability to protect data and maintain access to critical third-party data and infrastructure.
- Comparability of reported earnings and margins: 2022 included disposition gains and tax benefits, while 2023 included Energy-sale losses and other unusual items.