Verisk Analytics, Inc. quarterly report, Q1 FY2022

Verisk Analytics, Inc. — Q1 2022 Form 10-Q

Reporting period: Three months ended March 31, 2022. Verisk provides data analytics and decision-support solutions, principally to insurance customers. The company reported three segments during the quarter; it expected to move to two segments after selling Financial Services.

Financial performance

Metric	Q1 2022	Q1 2021
Revenue	$775.5 million	$726.1 million
Operating income	$642.6 million	$250.4 million
Net income attributable to Verisk	$505.7 million	$168.6 million
Diluted EPS	$3.13	$1.03
Cash from operating activities	$399.6 million	$448.7 million

• Revenue increased 6.8% year over year. Excluding recent acquisitions, Financial Services held for sale, and the environmental health and safety business disposition, revenue increased 4.9%.
• Insurance revenue grew 9.5% to $586.4 million (5.9% excluding recent acquisitions); Energy and Specialized Markets revenue declined 1.2% to $154.3 million; Financial Services revenue rose 1.6% to $34.8 million.
• Reported profit was materially affected by a $450.8 million gain on the environmental health and safety business sale and a $73.7 million impairment related to Financial Services. Net income margin was 65.2%, versus 23.1%; management attributed the increase primarily to the sale gain.
• Management-reported EBITDA was $736.4 million, up 113.1%, and EBITDA margin was 95.0%, versus 47.6%. These non-GAAP measures were elevated by the disposal gain; the filing says that gain increased consolidated EBITDA margin by 58.2 percentage points.
• Operating cash flow fell 10.9%, principally due to lower collections following the disposition, delayed customer collections, and one-time employee-related payments. Investing cash flow was $26.3 million provided, including $575.0 million of sale proceeds, offset in part by acquisitions, capital spending, and investments. Financing cash use was $293.6 million, including $571.3 million of share repurchases and $49.4 million of dividends.

Liquidity and debt

• At March 31, cash and cash equivalents were $397.9 million on the balance sheet; the cash flow statement reports $406.0 million including cash classified as held for sale. Management reported $402.5 million of cash and cash equivalents, excluding held-for-sale cash, plus available-for-sale securities.
• Total debt on the balance sheet was $3.64 billion, including $1.30 billion classified as short-term/current and $2.34 billion long-term. The company reported compliance with debt covenants. The $1.0 billion revolving credit facility had $185.4 million of available capacity at quarter-end; Verisk subsequently repaid $150.0 million.
• Current liabilities exceeded current assets; management noted that its working-capital deficit is typical of its prepaid-subscription model, with deferred revenue generally not requiring a direct cash outflow.
• Q1 share repurchases totaled $571.3 million, or 3.05 million shares, at a weighted-average $187.17 per share. The quarterly dividend declared was $0.31 per share.

Material changes, outlook, and risks

• Verisk completed the sale of its environmental health and safety business on March 11 for $575.0 million in proceeds, recognizing the $450.8 million gain. In Q1 it also agreed to sell Financial Services to TransUnion for net cash proceeds of $498.6 million; the sale closed April 8. Financial Services had a further $73.7 million impairment in Q1, following a $134.0 million impairment in 2021.
• Verisk acquired Opta and Infutor for net cash purchase prices of $217.6 million and $220.7 million, respectively. Purchase-price allocations remained preliminary; Infutor also has a contingent earn-out of up to $25.0 million.
• Management gave no numerical full-year guidance in the provided filing text. It said it expects cash and credit availability to meet working-capital and capital-expenditure needs and support growth. It described subscriptions as generally paid in advance and said it had not observed significant customer losses, receivables deterioration, liquidity reduction, or lower subscription renewals due to COVID-19.
• Suspension of commercial operations in Russia reduced Energy and Specialized Markets revenue by approximately $2.9 million. Management noted uncertainty around the transition from LIBOR to alternative reference rates but did not expect a material impact.
• Contingencies include ERISA, privacy, consumer-reporting, and contract litigation, as well as ongoing U.S. Attorney’s Office and SEC inquiries concerning Financial Services government contracts. For several matters, Verisk said it could not reasonably estimate potential liability. The Wood Mackenzie litigation was settled in March 2022 and dismissed in April.

Key investor verification points

• Separate recurring operating performance from the $450.8 million disposal gain and $73.7 million impairment when assessing earnings and margins.
• Review the completed Financial Services sale, its final proceeds and accounting, and the resulting segment reporting changes.
• Track operating cash conversion, customer collections, deferred-revenue trends, and credit-facility capacity after repurchases and acquisitions.
• Verify final acquisition purchase-price allocations and any contingent earn-out exposure.
• Monitor the SEC and government inquiries and unresolved litigation, for which potential losses were not estimable in the filing.