Verisk Analytics, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; comparisons are with Q1 2019 unless noted. Verisk provides data analytics and decision-support solutions across Insurance, Energy and Specialized Markets, and Financial Services.
Financial performance
- Revenue: $689.8 million, up 10.4%. Acquisitions and dispositions contributed a net $35.4 million; revenue growth excluding those transactions was 4.8%.
- Segment revenue: Insurance $489.4 million (+7.9%; +5.8% excluding transactions); Energy and Specialized Markets $160.1 million (+24.6%; +2.1% excluding transactions); Financial Services $40.3 million (-6.4%, but +2.7% excluding transactions).
- Profit: Operating income was $252.3 million (+24.7%); net income was $171.7 million (+27.8%). Diluted EPS was $1.04, up 28.4%. Net income margin increased to 24.9% from 21.5%.
- EBITDA: $337.3 million (+19.7%); EBITDA margin was 48.9%, versus 45.1%. These are non-GAAP measures; gains on business sales and lower acquisition-related earn-out costs contributed to margin expansion.
- Cash flow: Operating cash flow was $362.6 million, compared with $366.1 million. Investing used $87.5 million and financing used $255.4 million. Cash and cash equivalents ended the quarter at $204.4 million.
- Liquidity and debt: Cash and available-for-sale securities totaled $207.4 million. Total debt, including finance lease liabilities and debt adjustments, was $3,096.4 million; principal debt excluding those items was $3,090.0 million. The $1.0 billion revolving facility had $555.4 million of available capacity, net of letters of credit. Verisk reported compliance with its debt covenants.
- Working capital context: Current liabilities exceeded current assets, in part reflecting the subscription model: customers generally pay in advance and deferred revenue is a substantial current liability. Deferred revenue was $668.4 million on the balance sheet; contract liabilities were $672.2 million, with approximately 99% expected to be satisfied within one year.
Material changes and notable items
- Revenue growth was strongest in Energy and Specialized Markets, substantially reflecting the CaaS and Genscape acquisitions. Insurance growth included pricing and expanded solutions; Financial Services reported lower revenue primarily due to business dispositions.
- Other operating income of $19.4 million included a $15.9 million gain on the compliance background screening sale and a $3.5 million gain on the data warehouse sale.
- Verisk completed the aerial imagery sourcing group disposition in exchange for a 35% interest in Vexcel, recorded as an investment of $129.7 million. No gain or loss was recorded on that transaction.
- Q1 investing included $63.8 million invested in Vexcel and $52.9 million of capital expenditures; proceeds from the compliance background screening sale were $23.1 million.
- Verisk repurchased 1.12 million shares for $173.8 million and paid $43.9 million in dividends. The quarterly dividend declared per share rose to $0.27 from $0.25.
- Foreign-currency translation drove a $172.6 million other comprehensive loss; comprehensive loss was $0.1 million despite positive net income.
Outlook, risks, and contingencies
- COVID-19: Management said about 85% of revenue had no identified material impact at the time of filing, largely because it was subscription-based and covered by long-term contracts. Certain transactional services—particularly travel and auto insurance analytics, commercial-building engineering work, energy consulting, and financial-services advertising analytics—were exposed. The company reported modest Q1 effects, concentrated in the final two weeks of March, and continued to monitor the rapidly evolving situation. It cautioned that a prolonged pandemic could materially adversely affect results and financial condition.
- Management reported minimal disruption to customer-facing operations, no observed significant customer losses, receivables deterioration, liquidity reduction, or decline in subscription renewal rates, and expected to remain operationally stable. These were statements as of the filing, not assurances about later periods.
- No numerical full-year guidance was provided in the supplied filing text. Management said it did not anticipate a lasting material effect on its long-term growth profile, while noting the uncertainty of COVID-19’s impact.
- Litigation: A $125.0 million reserve remained for the Eagle View patent case following a jury finding of willful infringement and an injunction affecting certain roof and property measurement products used with Xactimate. Verisk planned to appeal; Eagle View sought treble damages, fees, and expenses, and post-trial motions were pending. The company said the ultimate resolution could not be reasonably determined.
- The 360Value litigation was dismissed with prejudice on March 4, 2020; plaintiffs had not filed a notice of appeal as of the filing.
- Management warned COVID-19-related economic pressures could adversely affect growth and potentially lead to goodwill impairment, although it reported no goodwill impairment trigger during the quarter. The $129.7 million Vexcel investment also relies on valuation estimates and is subject to impairment assessment.
Most important facts for investors to verify
- Whether COVID-19 materially affected transactional revenue, customer renewals, receivable collections, or liquidity after March 31, 2020.
- How much reported growth and margin expansion reflects acquisitions, dispositions, sale gains, and lower earn-out costs versus ongoing organic operations.
- The outcome and financial exposure of the Eagle View litigation, including the injunction, appeal, and potential damages beyond the recorded reserve.
- The valuation and recoverability of the Vexcel investment and goodwill under changing economic conditions.
- Debt, revolver availability, and cash deployment after quarter-end; the filing reports subsequent revolver borrowings of $20 million and repayments of $60 million.