Verisk Analytics, Inc. annual report, FY2020

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

MetricFY 2020FY 2019Change
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$216.88.9% of revenue in 2020
Cash and cash equivalents$218.8$184.6At year-end
Total debt$3,213.9$3,151.0At 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.