Verisk Analytics, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Amounts are USD unless stated otherwise. Verisk provides data analytics and decision-support solutions, primarily to insurance and energy customers. During the period, it sold its environmental health and safety business and its Financial Services segment; reported results include these businesses through their sale dates.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $746.3m | $747.5m | $1,521.8m | $1,473.6m |
| Operating income | $269.1m | $267.4m | $911.7m | $517.8m |
| Net income attributable to Verisk | $197.7m | $154.0m | $703.4m | $322.6m |
| Diluted EPS | $1.24 | $0.94 | $4.39 | $1.97 |
| Operating cash flow | $130.2m | $233.2m | $529.8m | $681.9m |
| EBITDA (non-GAAP) | $363.4m | $370.7m | $1,099.8m | $716.3m |
| EBITDA margin (non-GAAP) | 48.7% | 49.6% | 72.3% | 48.6% |
Q2 net income margin was 26.5%, compared with 20.3% a year earlier; the lower effective tax rate was a major contributor. Q2 revenue was nearly flat as growth in Insurance was offset by divestitures and lower Energy and Specialized Markets revenue. For the first half, reported revenue rose 3.3%; management said growth excluding recent acquisitions and dispositions was 4.6%.
- Revenue mix: Q2 Insurance revenue increased 10.9% to $610.0m, including 5.8% growth excluding acquisitions. Energy and Specialized Markets revenue fell 17.7% to $133.5m, largely reflecting the environmental health and safety sale; excluding acquisitions and dispositions, it declined 1.8%. Financial Services contributed $2.8m before its sale.
- Cash and liquidity: Cash and cash equivalents were $480.7m at June 30, up from $280.3m at year-end 2021. Current assets were $1,186.6m and current liabilities $2,112.5m; the filing says a working-capital deficit is typical because subscriptions are generally paid in advance.
- Debt: Total debt reported on the balance sheet was $3,479.2m, including $1,136.3m current and $2,342.9m long-term debt. The $1.0bn revolving credit facility had $345.1m available at quarter-end, net of letters of credit. The company reported covenant compliance and subsequently repaid $100m, stating facility availability then rose to $445.1m.
- Cash uses and investment: First-half capital expenditures were $129.2m; share repurchases were $896.3m and dividends paid were $98.6m. Investing cash flow included $1,073.3m of disposition proceeds and $448.9m of acquisition spending, net of cash acquired.
Material changes and unusual items
- Insurance remained the growth engine: first-half revenue rose 10.2% to $1,196.4m, with underwriting and rating up 11.5% and claims up 7.0%. Organic Insurance revenue growth was 5.8%.
- The sale of the environmental health and safety business generated a $450.8m gain. The Financial Services sale resulted in a $73.7m first-quarter long-lived-asset impairment and a $15.6m second-quarter loss on sale. The disposals were not presented as discontinued operations.
- First-half reported operating income, net income, and EBITDA were materially lifted by the disposition gain; the 72.3% EBITDA margin is therefore not representative of recurring operating performance. Q2 EBITDA also included the Financial Services sale loss.
- The effective tax rate was 18.3% for Q2 and 17.5% for the first half, versus 35.6% and 29.3%, respectively, in 2021. The filing cites prior-period U.K. tax-rate changes, equity-compensation tax benefits, and, for the first half, a tax benefit related to the environmental health and safety sale.
- Foreign currency translation reduced first-half other comprehensive income by $291.3m, contributing to accumulated other comprehensive losses increasing to $683.4m at June 30.
- Verisk acquired Opta and Infutor for stated net cash purchase prices of approximately $217.6m and $220.7m, respectively, and acquired an additional stake in Whitespace. Purchase accounting remained preliminary.
Outlook, risks, and contingencies
The filing provides no specific full-year revenue, earnings, or cash-flow guidance. Management said it expects available cash and credit capacity to be sufficient for working capital, capital expenditures, and growth plans, and noted that subscription revenue is generally billed in advance. Results for the first half are not necessarily indicative of full-year results.
- Management cited suspension of commercial operations in Russia as reducing first-half Energy and Specialized Markets revenue by approximately $3.5m.
- Goodwill and indefinite-lived intangible assets were reviewed at June 30; no additional impairment was recorded. The filing notes one reporting unit’s fair-value cushion is only modestly above 20%, and adverse changes in projections or market conditions could lead to a future material impairment.
- Ongoing matters include ERISA litigation, data-privacy putative class actions, and DOJ and SEC inquiries concerning government contracts of the former Financial Services segment. The company said potential liability for these matters cannot currently be reasonably estimated. It agreed to indemnify TransUnion for certain losses related to the DOJ inquiry.
- The company reported no material change in market risks, no material change in internal control over financial reporting, and no off-balance-sheet arrangements. It stated disclosure controls were effective at the reasonable assurance level.
Important facts for investors to verify
- Separate recurring operating performance from the $450.8m disposition gain and the Financial Services impairment and sale loss; review adjusted or continuing-business trends carefully.
- Track organic Insurance growth, Energy and Specialized Markets trends after the divestiture, and the effect of discontinued Russian operations.
- Monitor operating cash flow and tax payments: first-half operating cash flow declined 22.3%, partly due to higher taxes related to the 3E sale and the effect of divested businesses.
- Review debt maturities, revolving-credit use, repurchases, and the September 2022 term-loan maturity; confirm the impact of the subsequent $100m repayment.
- Follow the unresolved privacy and government-contract matters, indemnification exposure, preliminary acquisition valuations, and the reporting unit with a comparatively limited goodwill cushion.