Verisk Analytics, Inc. - Q2 2010 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2010. Verisk Analytics, Inc. is a leading provider of data and analytic solutions for risk-bearing businesses, primarily serving the U.S. property and casualty (P&C) insurance, mortgage, and healthcare industries. The company operates through two segments: Risk Assessment (statistical and actuarial data) and Decision Analytics (fraud detection, loss prediction, and quantification).
Key Financial Metrics (Six Months Ended June 30, 2010)
| Metric | 2010 (YTD) | 2009 (YTD) |
|---|---|---|
| Revenues | $557.8 million | $503.7 million |
| Net Income | $113.8 million | $90.9 million |
| Diluted EPS | $0.60 | $0.50 |
| Operating Income | $213.5 million | $175.1 million |
| EBITDA | $247.7 million | $210.9 million |
| EBITDA Margin | 44.4% | 41.9% |
| Cash from Operations | $173.0 million | $184.5 million |
| Total Debt | $530.7 million | $594.2 million |
| Cash & Equivalents | $106.8 million | $71.5 million |
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenue increased 10.8% year-over-year. The Decision Analytics segment drove growth with a 20.0% increase, while Risk Assessment grew 2.3%.
- Profitability: Net income rose 25.2% to $113.8 million. Operating income increased 22.0%.
- Expense Management: Cost of revenues increased 4.3%, and SG&A increased 11.0%. However, amortization of intangible assets decreased 15.6% due to the full amortization of certain prior acquisition assets.
- Acquisitions: The company acquired Strategic Analytics in February 2010. Recent acquisitions contributed approximately $4.0 million to YTD revenue.
- Debt Reduction: Total debt decreased by approximately $63.5 million as the company repaid $60 million of its syndicated revolving credit facility in January 2010.
Guidance, Outlook, and Risks
- Share Repurchases: The Board authorized a $150 million share repurchase program in April 2010. The company repurchased approximately $64.9 million of Class A common stock during the six-month period.
- ESOP Impact: The company recorded no ESOP allocation expense in 2010, a significant reduction from 2009, which positively impacted EBITDA margins by approximately 1.0%.
- Tax Rate: The effective tax rate was 42.2% for the six months ended June 30, 2010, compared to 42.5% in the prior year. This included a non-cash charge of $2.4 million related to reduced tax benefits of Medicare subsidies due to legislative changes.
- Liquidity: The company maintains a working capital deficit due to its subscription-based business model where customers prepay. Management believes cash from operations and available credit facilities ($418.5 million capacity) are sufficient to meet needs.
- Legal Proceedings: The company is involved in various litigation matters, including class actions regarding Claims Outcome Advisor, Xactware, and iiX. Management believes it has strong defenses but notes that outcomes are uncertain and could materially affect results.
Key Facts for Investor Verification
- Segment Performance: Verify the sustainability of the 20% revenue growth in the Decision Analytics segment, particularly regarding fraud detection and loss quantification solutions.
- Acquisition Integration: Assess the contribution of the Strategic Analytics acquisition to future revenue and EBITDA growth.
- Debt Covenants: Confirm continued compliance with debt covenants, specifically the fixed charge coverage ratio (minimum 275%) and leverage ratio (maximum 300%).
- Legal Exposure: Monitor the status of the Hensley, Schafer, and iiX litigation cases for potential settlement costs or judgments.
- Stock Repurchase Activity: Track the utilization of the $150 million repurchase authorization and its impact on share count and EPS.