Verisk Analytics, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Verisk provides data analytics and decision-support solutions across Insurance, Energy and Specialized Markets, and Financial Services.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $747.5 million | $678.8 million | $1,473.6 million | $1,368.6 million |
| Operating income | $267.4 million | $259.7 million | $517.8 million | $512.0 million |
| Net income attributable to Verisk | $154.0 million | $179.0 million | $322.6 million | $350.7 million |
| Diluted EPS | $0.94 | $1.08 | $1.97 | $2.12 |
| EBITDA (non-GAAP) | $370.7 million | $345.9 million | $716.3 million | $683.1 million |
| Operating cash flow | $233.2 million | $249.5 million | $681.9 million | $612.1 million |
- Q2 revenue rose 10.1%; excluding recent acquisitions and dispositions, it grew 7.7%. Six-month revenue increased 7.7%, or 6.0% excluding those effects.
- Q2 net income attributable to Verisk fell 14.0% and diluted EPS fell 13.0%. The six-month declines were 8.0% and 7.1%, respectively, despite revenue growth.
- Management-reported EBITDA margin was 49.6% in Q2 versus 51.0%; for the first half it was 48.6% versus 49.9%. Six-month net income margin was 21.7% versus 25.6%.
- Six-month capital expenditures were $121.7 million; operating cash flow less capital expenditures was $560.2 million, compared with $502.5 million in 2020 (calculated from reported figures).
- At June 30, cash was $276.3 million. Reported debt was $3,103.5 million, including finance lease liabilities and debt accounting adjustments; senior-note principal was $2.7 billion and revolver borrowings were $390 million. Credit Facility availability was $604.9 million, net of letters of credit. The company reported covenant compliance.
- Deferred revenue was $655.3 million current, and total contract liabilities were $656.2 million. Verisk says advance subscription payments support operating cash flow and that its working-capital deficit is historically managed through prepaid contracts.
Segment results and changes
- Insurance: Q2 revenue rose 11.8% to $550.0 million; six-month revenue increased 9.9% to $1,085.6 million. Growth reflected pricing, expanded customer solutions, catastrophe modeling, international software, repair-cost estimates, and claims analytics. Six-month EBITDA margin was 55.2%, down from 56.3%.
- Energy and Specialized Markets: Q2 revenue increased 9.2% to $162.3 million; first-half revenue rose 5.2% to $318.5 million. Six-month EBITDA margin improved to 35.0% from 33.4%.
- Financial Services: Q2 revenue declined 7.4% to $35.2 million; first-half revenue fell 11.3% to $69.5 million. Management cited nonrecurring projects and weaker consulting revenue, with COVID-19 among the factors. First-half EBITDA was $5.3 million versus $25.9 million, and margin fell to 7.6% from 33.1%; the prior-year period included a disposition gain.
- Operating expenses grew faster than revenue in Q2, including higher personnel costs as hiring resumed after pandemic-related pauses, and increased depreciation and amortization. The effective tax rate rose to 35.6% in Q2 from 20.4%, primarily reflecting the enacted U.K. tax-rate increase and lower equity-compensation tax benefits.
Cash, capital allocation, outlook and risks
- First-half financing cash outflow was $447.9 million, including repayment of $450 million of 5.8% senior notes, $250 million of share repurchases, and $94.2 million of dividends. The company issued a $150 million accelerated share repurchase agreement in July after quarter-end.
- Verisk reported no material COVID-19 disruption to operations, customer retention, collections, liquidity, or subscription renewals. It said about 85% of revenue had no material COVID-19 impact identified; affected transactional and advisory services had improved year over year, though pandemic effects remained under review.
- No specific financial guidance or quantified forward outlook is provided in the supplied filing text. Management expects available operating cash flow and Credit Facility capacity to support working capital, capital expenditures, and growth plans.
- Material contingency: In the Eagle View patent case, the court increased a $125 million jury award to $375 million and awarded interest and limited attorneys’ fees. Verisk appealed; execution remained stayed, and the company posted an additional $305 million bond. The filing says the ultimate outcome is uncertain and potential additional expense could exceed the existing $125 million reserve.
- Other disclosed matters include an ERISA class action, an MSPA-related putative class action, a Pennsylvania wiretap suit, a breach-of-contract case, and an ongoing U.S. Attorney inquiry concerning Financial Services government contracts. The company says it cannot reasonably estimate potential liability for these matters.
- Roskill and a 51% interest in Whitespace were acquired in 2021; purchase-price allocations remained preliminary. Verisk also invested an additional $15 million in Vexcel. Goodwill impairment testing as of June 30 found no impairment.
Important facts for investors to verify
- How much of revenue growth is organic and recurring, and whether Financial Services revenue and profitability recover.
- The effect of the higher U.K. tax rate and equity-compensation tax benefits on future effective tax rates and earnings.
- The status and potential financial exposure of the Eagle View appeal, including any reserve changes, interest, fees, and bond requirements.
- Debt maturities, revolver usage, liquidity, and the sustainability of repurchases and dividends alongside acquisition and capital-spending needs.
- Whether pandemic-sensitive transactional and advisory revenue continues to improve, and whether acquisition integration delivers expected growth.