Verisk Analytics, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; unaudited. Dollar amounts below are in millions unless stated otherwise. Verisk provides data and analytics for risk-bearing businesses through its Decision Analytics and Risk Assessment segments.
Financial performance
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Revenue | $459.4 | $409.6 | +12.1% |
| Operating income | $178.3 | $148.8 | +19.8% |
| Income from continuing operations | $98.7 | $84.4 | +16.9% |
| Diluted EPS from continuing operations | $0.61 | $0.50 | +22.0% |
| Net income | $98.7 | $115.6 | -14.6% |
| Cash provided by operating activities | $271.0 | $232.8 | +16.4% |
- Revenue growth was led by Decision Analytics, up 16.6% to $288.5 million; Risk Assessment rose 5.3% to $170.9 million. Excluding Maplecroft, Decision Analytics grew 15.6% and consolidated revenue grew 11.5%.
- Operating margin was approximately 38.8%, compared with 36.3% a year earlier. Continuing-operations net margin was approximately 21.5%, compared with 20.6%.
- Management-defined EBITDA was $216.3 million. The reported year-over-year decline of 9.3% is not like-for-like: Q1 2014 EBITDA included $55.6 million from discontinued operations, including the Interthinx sale gain. Excluding that amount, prior-period EBITDA was approximately $182.8 million; Q1 2015 EBITDA was higher. EBITDA is a non-GAAP measure.
- Cash and cash equivalents were $152.8 million at quarter-end, versus $39.4 million at December 31, 2014. Cash plus available-for-sale securities was $156.7 million. Operating cash flow reflected advance subscription payments; fees received in advance increased $106.9 million.
- Capital expenditures were $24.8 million. Management expected approximately $150 million of capex for full-year 2015, mainly for technology infrastructure and solution development.
- Total debt was $1,306.2 million, including $205.9 million classified as current. Long-term debt was $1,100.4 million. The company repaid $130 million net under its revolving facility during the quarter and reported compliance with debt covenants. Current liabilities exceeded current assets, in part because of $359.5 million of customer fees received in advance.
- The effective tax rate was 38.1%, up from 35.7%, primarily because favorable state legislative changes benefited the prior-year quarter. Interest expense increased 4.7% to $18.3 million.
Material changes and management commentary
- Decision Analytics growth reflected higher financial services, healthcare and insurance revenue. Financial services grew 67.3%, partly due to a media-effectiveness project; excluding that project, growth was 15.1%. Healthcare grew 17.5%, driven by payment-accuracy transactions; management expected healthcare growth to moderate during the rest of 2015.
- Risk Assessment revenue growth reflected pricing from enhanced content and expanded solutions to existing customers. Its EBITDA margin increased to 59.1% from 57.5%, with management citing operating leverage and cost efficiencies.
- The 2014 comparison includes Interthinx, sold in March 2014, as a discontinued operation. Q1 2014 net income included $31.1 million of after-tax discontinued-operations income; Q1 2015 had none. Basic and diluted weighted-average shares fell approximately 5.3% and 5.2%, respectively.
- Operating cash flow increased 16.4%; investing cash flow was a $25.2 million outflow, versus $109.9 million provided in 2014, which included proceeds from the Interthinx sale. Financing cash outflow was $132.1 million, primarily reflecting debt repayment. No shares were repurchased in Q1 2015.
Outlook, financing, risks and unusual items
- In March, Verisk agreed to acquire Wood Mackenzie for approximately $2.8 billion in net cash, subject to closing adjustments. The planned financing included debt and equity offerings, credit-facility borrowings and cash on hand. A $2.3 billion, 364-day bridge commitment was available if the planned offerings were not completed; Verisk paid $9.1 million in related fees.
- On April 22, 2015, after quarter-end, Verisk signed an agreement for a new $1.75 billion revolving credit facility, conditional on several requirements including a minimum equity issuance. The agreement was intended to help fund the acquisition and replace the existing $990 million facility when effective. Verisk also reported repaying $30 million of facility borrowings on April 7.
- The filing provides no formal earnings or revenue guidance. Management noted that Q1 results are not necessarily indicative of full-year results and that healthcare revenue growth was expected to moderate. Subscription payments are often collected in advance, making operating cash flow generally stronger in the first quarter.
- Legal matters included an appeal in the Mariah Re dispute, a shareholder-related MediConnect case and the Snyder antitrust/racketeering action; Verisk said it could not estimate potential losses for certain matters. The Interthinx employment cases had a $6 million settlement, mostly expected to be covered by insurance; final court approval was issued April 22, 2015.
- Management reported no material change to the previously disclosed risk factors or market risks, no off-balance-sheet arrangements, and effective disclosure controls as of March 31, 2015.
Key facts for investors to verify
- Whether the Wood Mackenzie acquisition closed on the anticipated terms and how its purchase price and financing were ultimately funded, including the equity issuance and new credit facility conditions.
- Post-acquisition leverage, covenant headroom, interest costs and refinancing of debt maturing in 2015.
- Whether healthcare growth moderated as management expected, and whether financial-services growth was sustained without the one-time project.
- Underlying operating performance using comparable continuing-operations measures, given the Interthinx sale gain in the prior-year comparison and the company’s use of non-GAAP EBITDA.
- Resolution and financial impact, if any, of the disclosed litigation matters.