Verisk Analytics, Inc. — FY2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. Although the request identifies 2014 Q4, this filing reports full-year results; quarterly figures are included where provided. Financial amounts are in U.S. dollars; figures are in millions unless stated otherwise.
Business context
Verisk provides proprietary data, analytics, and decision-support solutions, primarily to property-and-casualty insurers, and also to healthcare, financial-services, government, and specialized-market customers. Its reportable segments are Decision Analytics and Risk Assessment. About 72.3% of FY2014 revenue came from subscriptions and long-term agreements, which are generally prepaid.
Financial performance
| Metric | FY2014 | FY2013 | Change |
|---|---|---|---|
| Revenue | $1,746.7 | $1,595.7 | +9.5% |
| Operating income | $660.4 | $614.3 | +7.5% |
| Income from continuing operations | $370.9 | $342.3 | +8.3% |
| Net income | $400.0 | $348.4 | +14.8% |
| Diluted EPS | $2.37 | $2.02 | +17.3% |
| Operating cash flow | $489.5 | $506.9 | −3.4% |
| Capital expenditures | $146.8 | $146.0 | +0.6% |
| Cash and cash equivalents | $39.4 | $165.8 | −76.3% |
| Total debt, including capital leases | $1,436.9 | $1,275.9 | +12.6% |
Operating margin was approximately 37.8%, versus 38.5% in 2013. The company reported EBITDA of $858.6 million and a 48.8% EBITDA margin, but these non-GAAP figures include discontinued operations and the gain on the mortgage-services sale; that gain increased FY2014 margin by 2.8 percentage points. EBITDA should not be treated as a substitute for operating cash flow. Operating cash flow less capital expenditures was approximately $342.6 million, a simple calculated cash-flow measure.
Revenue growth was led by Decision Analytics, up 12.1% to $1,096.1 million; Risk Assessment grew 5.2% to $650.7 million. Decision Analytics growth included insurance (+11.1%), financial services (+19.3%), and healthcare (+16.2%); specialized markets declined 0.8%. Risk Assessment benefited from expanded solutions and pricing. Cost of revenues rose 15.1%, faster than revenue, while selling, general and administrative expense fell 0.7%.
Q4 2014: Revenue was $464.9 million, versus $416.7 million in Q4 2013 (+11.6%); operating income was $177.0 million versus $155.0 million (+14.2%). Continuing-operations income was $99.3 million versus $86.4 million. Net income was $97.4 million, including a $1.9 million loss from discontinued operations, compared with $87.2 million a year earlier.
Liquidity, debt, and capital allocation
At year-end, cash and available-for-sale securities totaled $43.2 million, compared with $169.7 million a year earlier. Current assets were $384.5 million and current liabilities $771.3 million; the company describes its working-capital deficit as typical because customer subscriptions are largely prepaid. Fees received in advance were $252.6 million. The revolving credit facility had $160 million drawn and $827.9 million of available capacity, net of letters of credit; the company reported compliance with its debt covenants. It repaid $140 million of facility borrowings in January and February 2015.
FY2014 financing cash outflow was $579.1 million, primarily reflecting $778.5 million of share repurchases. The company announced a $500 million accelerated repurchase program in December and had $189.8 million remaining under the other repurchase authorization at year-end. It reported no current intention to pay cash dividends.
Material changes, outlook, and risks
- Verisk sold mortgage-services subsidiary Interthinx on March 11, 2014, for approximately $151.2 million in reported proceeds. The business is presented as discontinued operations for all periods shown. FY2014 discontinued-operations income was $29.2 million and included a $65.4 million pre-tax gain on sale.
- Maplecroft was acquired in December 2014 for a net cash purchase price of $30.1 million. Verisk terminated its proposed $650 million EagleView/Pictometry acquisition after the FTC voted to challenge it.
- Management estimated 2015 capital expenditures of approximately $150 million, primarily for technology infrastructure and solution development. The filing provides no specific revenue or earnings guidance.
- Management cited insurance-market conditions, catastrophe activity, healthcare reform, financial-services spending, and currency movements as factors that may affect demand. It expects investment in new solutions, data, and technology to support growth, while acknowledging that investment can weigh on margins.
- Key disclosed risks include dependence on external data sources and U.S. P&C insurers (about 49.1% of FY2014 revenue), privacy and data-security regulation or breaches, customer consolidation, competition, acquisition integration, and operational disruption.
- Several lawsuits remained unresolved, including the Mariah Re appeal, a MediConnect shareholder action, pension litigation on appeal, and the Snyder insurance-claims class action. The company said it could not estimate potential losses for these matters. A separate Interthinx employment settlement was for $6 million, mostly expected to be covered by insurance, subject to final court approval.
Most important facts for investors to verify
- Separate continuing-operations performance from discontinued operations and assess the impact of the Interthinx sale gain on net income and EBITDA margin.
- Review cash conversion, the decline in year-end cash, planned capital spending, and the funding of repurchases alongside debt maturities and available credit capacity.
- Track organic growth and margin trends by segment, especially Decision Analytics data and processing costs and the weakness in specialized markets.
- Monitor the outcome and potential exposure of pending litigation, particularly matters for which the company cannot estimate a loss range.
- Confirm progress against management’s growth strategy and the stated 2015 capital-expenditure estimate; the filing gives no quantitative earnings or revenue forecast.