Verisk Analytics, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Verisk provides data analytics and decision-support solutions across Insurance, Energy and Specialized Markets, and Financial Services.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $678.8 million | $652.6 million | $1,368.6 million | $1,277.6 million |
| Operating income | $259.7 million | $218.3 million | $512.0 million | $420.7 million |
| Net income | $179.0 million | $150.4 million | $350.7 million | $284.8 million |
| Diluted EPS | $1.08 | $0.90 | $2.12 | $1.71 |
| Operating cash flow | $249.5 million | $200.3 million | $612.1 million | $566.4 million |
- Q2 revenue rose 4.0%; six-month revenue rose 7.1%. Net income increased 19.0% and 23.2%, respectively.
- Reported net income margins were 26.4% in Q2 versus 23.0%, and 25.6% for the first half versus 22.3%. Non-GAAP EBITDA margins were 51.0% versus 45.5% and 49.9% versus 45.3%, respectively.
- Six-month revenue by segment: Insurance $975.8 million (+5.5%); Energy and Specialized Markets $314.5 million (+18.3%); Financial Services $78.3 million (-10.3%). Excluding acquisitions and dispositions, total revenue grew 0.6% in Q2 and 2.7% in the first half.
- Cash and cash equivalents were $309.4 million at June 30, 2020, versus $184.6 million at year-end 2019. Current assets were $878.7 million and current liabilities $1,490.3 million; management attributes its customary working-capital deficit largely to advance customer billings and deferred revenue.
- Total debt carrying value was $3,143.7 million, including $453.0 million of short-term and current debt and $2,690.7 million of long-term debt. The company reported $994.8 million of available capacity under its $1.0 billion revolving credit facility and compliance with debt covenants.
- Six-month investing cash outflow was $145.7 million, including $109.6 million of capital expenditures; financing cash outflow was $342.4 million. The company repurchased $248.8 million of stock and paid $87.9 million in dividends during the period.
Material changes and unusual items
- Growth reflected acquisitions, including Genscape, and dispositions; acquisitions and dispositions contributed net revenue of $22.5 million in Q2 and $57.8 million for the first half. Excluding these, Energy and Specialized Markets and Financial Services revenue declined in both periods.
- Cost reductions, including lower travel and incentive expenses, supported margin growth. Management also cited the timing shift in annual equity incentive grants and lower acquisition earn-out costs.
- First-half other operating income of $19.4 million included gains from selling the compliance background screening business ($15.9 million) and data warehouse business ($3.5 million). Verisk also exchanged the aerial imagery sourcing group and $63.8 million cash for a 35% noncontrolling interest in Vexcel; no gain or loss was recorded on that transaction.
- Verisk issued $500 million of 3.625% senior notes due 2050 in May, using net proceeds partly to repay its revolving credit facility. Interest expense increased 12.0% in Q2 and 8.3% for the first half year over year.
- Goodwill was $3,744.1 million at June 30, down from $3,864.3 million at year-end, mainly reflecting foreign currency translation. The annual impairment test found no goodwill impairment.
Outlook, risks and contingencies
- No numerical earnings or revenue guidance is provided in the supplied filing text. Management said it did not then anticipate lasting material effects of COVID-19 on its long-term growth profile, while continuing to monitor the evolving situation.
- Management reported minimal customer-facing interruptions and no significant customer losses, deterioration in receivable collectability, liquidity reduction, or decline in subscription renewals. Approximately 85% of revenue was not identified as materially affected and grew about 5% in Q2; the remaining, largely transactional 15% declined about 20%, affected by lower auto and travel insurance activity, restricted building access, reduced energy-sector capital spending, and lower financial-services advertising.
- The company identified COVID-19 and related economic disruption as a risk that could materially adversely affect business, results, and financial condition if prolonged. It also cited uncertainty around the post-2021 LIBOR transition, though it did not anticipate a material impact from a potential SOFR transition based on recent borrowings and rates.
- In the EagleView patent litigation, a jury had awarded $125 million and a permanent injunction had been entered concerning specified roof/property measurement products used with Xactimate. Verisk had recorded a $125 million reserve, was seeking post-trial relief, and intended to appeal if unsuccessful. Enhanced damages, attorneys’ fees, costs, and interest were sought; the outcome and any additional loss were not reasonably estimable. A court decision was expected in the second half of 2020.
Important facts for investors to verify
- Whether COVID-19-related declines in transactional solutions persist, and how subscription growth and renewals develop.
- Organic segment performance, especially the decline in Insurance claims revenue and Financial Services revenue, apart from acquisition and disposition effects.
- The outcome and potential financial exposure of the EagleView litigation, including the injunction and requests for enhanced damages.
- Debt maturities, refinancing needs, interest expense, and available revolving-credit capacity; the filing reports no debt maturity until May 2021.
- The sustainability of reported margin gains, given cost reductions, disposition gains, lower travel spending, and incentive-compensation timing.