Verisk Analytics, Inc. — FY2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013; filed February 25, 2014. This is an annual report, not a standalone Q4 filing. Unless noted, dollar amounts below are in millions. Mortgage services is presented as a discontinued operation in all periods shown.
Business context and financial performance
Verisk provides proprietary risk data, analytics and decision-support solutions, primarily to property and casualty insurers, as well as healthcare, financial services and other customers. Its two reportable segments are Decision Analytics and Risk Assessment. Approximately 73.6% of 2013 revenue came from subscriptions and long-term agreements, generally prepaid.
| Metric | FY2013 | FY2012 | Change |
|---|---|---|---|
| Revenue | $1,595.7 | $1,407.8 | +13.3% |
| Operating income | $614.3 | $572.2 | +7.3% |
| Income from continuing operations | $342.3 | $317.5 | +7.8% |
| Net income, including discontinued operations | $348.4 | $329.1 | +5.8% |
| Diluted EPS | $2.02 | $1.92 | +5.2% |
| Operating margin | 38.5% | 40.6% | Down 2.1 percentage points |
| EBITDA margin, including discontinued operations | 44.6% | 45.4% | Down 0.8 percentage points |
Revenue growth excluding specified recent acquisitions was 8.5%: Decision Analytics grew 9.8% and Risk Assessment 6.7%. Decision Analytics revenue rose 18.0% including acquisitions, with healthcare up 21.8% and insurance up 9.3%; financial services growth was substantially acquisition-driven. Risk Assessment growth reflected expanded solutions and pricing. Risk Assessment EBITDA margin rose to 56.1% from 54.6%, while Decision Analytics margin fell to 38.0% from 39.8%.
Q4 2013 unaudited results: Revenue was $416.7 million versus $388.5 million in Q4 2012 (+7.3%); operating income was $155.0 million versus $157.4 million (-1.5%); net income was $87.2 million versus $98.3 million (-11.3%); diluted EPS was $0.51 versus $0.57.
Cash flow, debt and liquidity
- Operating cash flow was $506.9 million, up from $468.2 million. Investing cash outflow was $145.6 million, compared with $883.6 million in 2012, when acquisitions were significant. Financing cash outflow was $284.5 million.
- Capital expenditures, including non-cash fixed-asset purchases and capital leases, were $157.5 million (9.2% of revenue), versus $79.8 million in 2012. Management estimated 2014 capital expenditures of approximately $147 million.
- Cash and cash equivalents were $165.8 million; available-for-sale securities were $3.9 million. Total debt including capital leases was $1,275.9 million; debt excluding capital leases was $1,265.1 million. No credit-facility borrowings were outstanding at year-end.
- The amended revolving credit facility provides $975 million of capacity, with $973.1 million available net of letters of credit. The company reported compliance with debt covenants. It had no off-balance-sheet arrangements.
- Current assets were $474.8 million and current liabilities $431.2 million. Management notes that prepaid subscriptions and deferred revenue contribute to its historically negative working-capital model. The filing does not provide a current ratio.
- Verisk repurchased $278.9 million of shares in 2013; $165.3 million remained authorized. It had not paid cash dividends and did not intend to do so.
Material changes, outlook and risks
- In February 2014, Verisk agreed to sell Interthinx, its mortgage services business, for $155 million, subject to customary conditions and regulatory review; closing was expected by March 31, 2014. The business reported 2013 revenue of $109.2 million and net income of $6.1 million as discontinued operations.
- In January 2014, Verisk agreed to acquire Eagleview Technology Corporation for $650 million in net cash, funded with operating cash and credit-facility borrowings. The filing expected approximately $475 million of new borrowing; estimated pro forma total debt of $1.756 billion and debt-to-EBITDA leverage of approximately 2.15. Closing was expected by July 2014, subject to approvals and other conditions.
- Management anticipated U.S. P&C insurance premium growth near recent rates through 2014, assuming modest economic growth. It described healthcare reform, cost containment and value-based reimbursement as potential demand drivers for analytics. No company-specific numerical revenue or earnings guidance is provided.
- Key risks include dependence on external data access and U.S. P&C insurers (about 47.4% of 2013 revenue came from solutions for U.S. P&C primary insurers), privacy and data-security regulation, cyber incidents, competition, customer consolidation, acquisition integration and increased leverage following the planned Eagleview transaction.
- Litigation includes employment-related class actions involving Interthinx and other matters for which loss estimates were unavailable. A settlement of certain FCRA class actions provided for $18.6 million, expected to be covered by insurance, subject to final approval. Verisk stated it could not estimate potential loss for several ongoing cases, including claims involving catastrophe-related contracts, pension benefits and an alleged vehicle-history reporting error.
- Goodwill and net intangible assets totaled $1.629 billion, or 65.1% of assets. The 2013 impairment test found no goodwill impairment, but the balance makes valuation assumptions relevant. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Confirm the final closing, consideration adjustments and proceeds from the Interthinx sale, and how its disposition affects continuing-business comparisons.
- Verify whether Eagleview closed on the expected terms; track actual financing, total debt, leverage and integration costs against the filing’s estimates.
- Reconcile reported revenue and earnings growth with acquisition contributions, discontinued-operation presentation and the decline in operating and EBITDA margins.
- Assess whether rising capital expenditure and depreciation support expected growth, and monitor operating cash flow after share repurchases and acquisition spending.
- Track resolution and insurance coverage of material litigation, as well as continued access to critical third-party and customer-contributed data.