Verisk Analytics, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Amounts are U.S. dollars; financial statement amounts are in millions unless noted.
Business context
Verisk provides data analytics and decision-support solutions across insurance, energy and specialized markets, and financial services. Insurance generated about 74% of quarterly revenue. The company says most revenue is subscription-based, typically prepaid, and its first-quarter cash flow benefits from the timing of subscription collections.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $726.1 | $689.8 | +5.3% |
| Operating income | $250.4 | $252.3 | -0.8% |
| Net income attributable to Verisk | $168.6 | $171.7 | -1.8% |
| Diluted EPS | $1.03 | $1.04 | -1.0% |
| EBITDA, company-defined non-GAAP | $345.6 | $337.3 | +2.5% |
| EBITDA margin | 47.6% | 48.9% | -1.3 percentage points |
| Net income margin | 23.1% | 24.9% | -1.8 percentage points |
| Net cash from operating activities | $448.7 | $362.6 | +23.7% |
| Capital expenditures | $59.2 | $52.9 | +$6.3 |
Operating cash flow less capital expenditures was approximately $389.5 million. Management attributed the operating cash flow increase mainly to higher customer collections and lower travel payments. Operating income and margins were pressured in comparison with Q1 2020, which included $19.4 million of gains from business sales.
Segments and material changes
- Insurance: Revenue rose 8.1% to $535.6 million; EBITDA increased 5.8% to $289.0 million. Growth reflected underwriting and rating solutions, catastrophe modeling, international software, and repair-cost estimating. EBITDA margin was 54.0%, versus 55.2%.
- Energy and Specialized Markets: Revenue rose 1.3% to $156.2 million; EBITDA increased 8.8% to $53.7 million. Margin improved to 34.4% from 32.0%, with cost discipline and lower pandemic-related travel costs contributing.
- Financial Services: Revenue fell 15.0% to $34.3 million; EBITDA declined to $2.9 million from $14.7 million, and margin fell to 8.3% from 36.4%. The company cited nonrecurring projects, weaker consulting revenue, the data warehouse business disposition, and higher SG&A.
- Acquisitions and dispositions contributed net revenue of $7.0 million company-wide. Verisk acquired 51% of Whitespace Software for a net cash purchase price of $12.8 million; it expects to acquire the remaining 49% in stages over three years under a revenue-multiple formula with a free-cash-flow adjustment.
Cash, debt, and liquidity
- Cash and cash equivalents were $390.9 million at March 31, 2021, up from $218.8 million at year-end 2020. Current assets were $1,041.6 million and current liabilities were $1,622.9 million; management says the working-capital deficit reflects prepaid subscriptions recorded as deferred revenue.
- Total reported debt, including finance lease liabilities and accounting adjustments, was $3,164.4 million. Senior notes had aggregate principal of $3,150.0 million. The company reported compliance with debt covenants.
- The $1.0 billion revolving credit facility had $994.9 million available, net of letters of credit, and no borrowings outstanding at quarter-end. The 5.800% $450 million notes matured May 1, 2021 and were repaid May 3 using $250 million of credit-facility borrowings and operating cash.
- Operating cash flow was partly offset by $100.0 million in share repurchases, $47.1 million in dividends, and $50.0 million in net short-term debt repayments. The quarterly dividend was $0.29 per share, compared with $0.27 a year earlier.
Outlook, commentary, risks, and unusual items
- No specific quantitative full-year guidance is provided in the supplied filing text. Management said Q1 results are not necessarily indicative of full-year results and expected sufficient cash and facility capacity for working capital, capital expenditures, and growth plans.
- Management reported minimal COVID-19 disruption to customer-facing operations, with no significant customer losses, receivables deterioration, liquidity reduction, or decline in subscription renewals. About 85% of revenue was assessed as not materially affected and grew about 5%; identified, largely transactional services declined about 6%. Management did not anticipate a material lasting effect on long-term growth, while continuing to monitor conditions.
- Patent litigation: A court trebled a jury award from $125 million to $375 million and also awarded interest and certain attorneys’ fees. Verisk had a $125 million reserve and said the potential additional expense could be material if its appeal fails. Execution of the monetary judgment was stayed; Verisk agreed to post an additional $305 million bond. The appeal remained pending.
- Other disclosed matters include an ERISA class action, an ISO Claims Partners-related Medicare Secondary Payer Act action, a Pennsylvania wiretap class action, and an early-stage U.S. Attorney’s Office inquiry concerning Financial Services government contracts. The company said it could not reasonably estimate potential liability for the identified lawsuits or anticipate the inquiry’s outcome or impact. A separate California lawsuit was dismissed without prejudice in April 2021.
- Other unusual comparison items include the prior-year $19.4 million disposition gains, which were absent in Q1 2021, and a higher effective tax rate in 2021 (22.5% versus 20.8%), primarily because of lower tax benefits from equity compensation.
Important facts for investors to verify
- Progress and potential financial exposure in the patent appeal, including the status of the judgment, reserve, and required bonds.
- Whether Financial Services revenue and profitability stabilize after the reported declines, and developments in the government-contracts inquiry.
- Performance of COVID-19-sensitive transactional and consulting services as activity normalizes.
- Post-quarter repayment of the May 2021 notes, subsequent credit-facility borrowings, and continued covenant and liquidity headroom.
- Final purchase accounting and future payment terms for Whitespace, including the staged acquisition of the remaining ownership interest.