Verisk Analytics, Inc. — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed February 23, 2021. The filing is an annual report, not a standalone Q4 filing. Dollar amounts below are in millions unless stated otherwise.
Business context
Verisk provides data analytics and decision-support solutions across Insurance, Energy and Specialized Markets, and Financial Services. Most revenue comes from subscriptions and longer-term agreements, commonly prepaid. Insurance represented about 71% of 2020 revenue. The company reported that more than 82% of consolidated revenue was subscription-based.
Financial performance and liquidity
| Metric | FY 2020 | FY 2019 | Change |
|---|---|---|---|
| Revenue | $2,784.6 | $2,607.1 | +6.8%; +3.4% excluding acquisitions and dispositions |
| Operating income | $1,038.1 | $696.9 | +49.0% |
| Net income | $712.7 | $449.9 | +58.4% |
| Diluted EPS | $4.31 | $2.70 | +59.6% |
| Operating cash flow | $1,068.2 | $956.3 | +11.7% |
| Capital expenditures | $246.8 | $216.8 | 8.9% of revenue in 2020 |
| Cash and cash equivalents | $218.8 | $184.6 | At year-end |
| Total debt | $3,213.9 | $3,151.0 | At year-end; includes finance leases and debt-related adjustments |
Net income margin was 25.6%, versus 17.3% in 2019; operating margin was 37.3%, versus 26.7%. Management-reported EBITDA was $1,393.8, with a 50.1% margin, compared with $1,018.9 and 39.1% in 2019. EBITDA is a non-GAAP measure and is not a substitute for GAAP earnings or cash flow.
Segment revenue: Insurance $1,986.3 (+6.5%); Energy and Specialized Markets $641.6 (+13.8%, substantially reflecting acquisitions; excluding them, revenue declined 1.1%); Financial Services $156.7 (-12.0%; -3.3% excluding acquisitions and dispositions). Insurance growth was led by underwriting and rating; claims revenue fell 2.5% reported, but increased 2.2% excluding acquisition and disposition effects.
Fourth-quarter 2020 revenue was $713.3, operating income $250.7, net income $176.2, and diluted EPS $1.07. In Q4 2019, the corresponding figures were $676.8, $206.6, $132.2, and $0.80.
Cash and available-for-sale securities totaled $222.9 at year-end. The company had $944.6 of available capacity on its $1.0 billion revolving credit facility, net of letters of credit, and reported compliance with debt covenants. It issued $500.0 of 3.625% senior notes due 2050 in 2020. Cash used for share repurchases was $348.8; dividends paid were $175.8.
Changes, outlook, risks and unusual items
- Revenue growth included $92.0 of net contribution from recent acquisitions and dispositions; underlying growth was 3.4%. The 2020 acquisitions included Franco Signor and Jornaya.
- Reported earnings and margins benefited materially from comparison with 2019, when Verisk recorded a $125.0 litigation reserve, and from lower acquisition-related earn-out costs in 2020. 2020 results also included $19.4 of net gains in other operating income, primarily from business dispositions. COVID-related travel reductions and cost discipline further supported margins.
- COVID-19 negatively affected transactional and consulting activity. Management said approximately 85% of revenue had no identified material pandemic impact and grew about 6%; affected solutions representing the remaining 15% declined about 11%. Areas cited included auto and travel insurance, property inspections, energy consulting, and financial-services analytics. Management reported limited operational disruption and did not anticipate a lasting material effect on its long-term growth profile, while continuing to monitor developments.
- Cash flow from operations increased partly due to stronger collections, deferred employer payroll taxes under the CARES Act, and lower travel payments. Investing cash outflow was $595.8, including acquisitions, capital spending, and investments in private companies.
- Material litigation: On February 16, 2021, after year-end, the court trebled the jury’s $125.0 award in the Xactware patent case to $375.0 and also awarded interest and attorneys’ fees. Verisk had a $125.0 reserve and its appeal remained pending; the ultimate outcome and potential additional exposure were uncertain.
- Other disclosed litigation included ERISA, Medicare Secondary Payer, and a Jornaya privacy class action; the filing said the potential liabilities could not then be reasonably estimated. Other key risks include dependence on external data sources and U.S. P&C insurers, privacy and cybersecurity regulation, acquisition integration, energy-market weakness, foreign exchange exposure, and competition.
- No specific financial guidance was provided in the supplied filing text. Management’s stated strategy emphasized recurring-revenue growth, expanding solutions and data assets, adjacent markets, and selective acquisitions.
Most important facts for investors to verify
- Follow the Federal Circuit appeal and any ultimate damages, interest, or fee exposure in the Xactware patent litigation.
- Assess whether underlying revenue growth can improve, particularly in Energy and Specialized Markets and Financial Services, without relying on acquisitions.
- Separate durable operating improvement from the unusually favorable year-over-year comparison, disposition gains, earn-out changes, and pandemic-related cost savings.
- Review debt maturities, refinancing needs, and the capacity to sustain acquisitions, dividends, and share repurchases; $514.4 of debt was scheduled for 2021.
- Monitor COVID-19 effects on transactional revenue, data access and privacy requirements, and goodwill valuation—goodwill was $4,108.1, including $2,287.0 in an Energy and Specialized Markets reporting unit identified as a critical audit matter. The 2020 impairment test found no impairment.