Verisk Analytics, Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also reports unaudited fourth-quarter results. Amounts are in millions of dollars, except per-share data and where noted.
Business context
Verisk provides data analytics and decision-support solutions across Insurance, Energy and Specialized Markets, and Financial Services. More than 81% of 2019 revenue came from annual subscriptions or long-term agreements, generally paid in advance. Insurance represented about 71% of revenue; Energy and Specialized Markets about 22%; Financial Services about 7%.
Key financial metrics
| Metric | FY 2019 | FY 2018 | Change |
|---|---|---|---|
| Revenue | $2,607.1 | $2,395.1 | +8.9% |
| Operating income | $696.9 | $834.1 | -16.4% |
| Net income | $449.9 | $598.7 | -24.8% |
| Diluted EPS | $2.70 | $3.56 | -24.2% |
| Operating margin | 26.7% | 34.8% | Down 8.1 percentage points |
| Net income margin | 17.3% | 25.0% | Down 7.7 percentage points |
| EBITDA (non-GAAP) | $1,018.9 | $1,145.5 | -11.0% |
| EBITDA margin (non-GAAP) | 39.1% | 47.8% | Down 8.7 percentage points |
| Net cash from operations | $956.3 | $934.4 | +$21.9 |
| Cash and cash equivalents at year-end | $184.6 | $139.5 | +$45.1 |
| Total debt, including finance leases and related adjustments | $3,151.0 | $2,723.3 | +$427.7 |
Revenue growth excluding recent acquisitions, businesses held for sale, and the disposition was 6.2%. Segment revenue was Insurance $1,855.5 (+8.8%), Energy and Specialized Markets $573.6 (+11.7%), and Financial Services $178.0 (+1.2%). Segment EBITDA was $827.1, $137.4, and $54.4, respectively.
Investing activities used $927.9, principally for acquisitions ($703.7) and capital expenditures ($216.8). Financing activities provided $10.9. Capital expenditures were 8.3% of revenue. Verisk paid $163.5 in dividends and repurchased $300.0 of common stock during 2019.
Year-end current assets were $744.9 and current liabilities $1,491.8; management says its working capital deficit is typical because subscription customers generally prepay. The revolving credit facility had $495.0 outstanding and $500.2 of available capacity, net of letters of credit. The facility matures in 2024; the company reported compliance with its debt covenants.
Material changes and unusual items
- Revenue rose 8.9%, with organic growth across Insurance and Energy and Specialized Markets; acquisitions contributed net revenue of $64.7.
- SG&A rose 59.4% to $603.5, mainly reflecting a $125.0 litigation reserve and a $71.1 increase in acquisition-related earn-out costs. The 2019 results also included a $6.2 loss on the sale of the retail analytics business and accelerated stock-compensation expense for certain employees.
- The $125.0 reserve followed a jury finding of willful patent infringement. The court permanently enjoined sales of specified roof and property measurement products when combined with Xactimate. Verisk planned to appeal; the plaintiffs sought up to treble damages, fees, and expenses. The ultimate resolution was not reasonably estimable.
- The effective tax rate increased to 20.9% from 16.8%, primarily due to lower tax benefits from equity compensation and nondeductible earn-out expenses.
- Acquisitions included Genscape, FAST, BuildFax, and other businesses; acquisition spending was $703.7. The company classified its compliance background screening business and aerial imagery sourcing group as held for sale. The filing reports their sales closed in February 2020, after year-end.
- Verisk issued $600.0 principal amount of 4.125% senior notes due 2029 in two tranches and repaid $250.0 of senior notes that matured in January 2019. The revolving facility borrowing capacity was reduced from $1,500.0 to $1,000.0.
- Fourth-quarter revenue was $676.8, operating income $206.6, and net income $132.2. The filing provides no clear quarter-specific comparison narrative; full-year comparisons are against FY 2018.
Outlook, management commentary, and risks
Management emphasizes recurring-revenue growth, product development, customer penetration, international expansion, and selective acquisitions. It stated that operating cash generation and revolver availability should be sufficient for working capital, capital expenditures, and growth plans. The filing provides no specific FY 2020 revenue or earnings guidance.
Key disclosed risks include dependence on external data suppliers and U.S. property-and-casualty insurers (about 49% of 2019 revenue), cybersecurity and privacy incidents, changing data regulation, competition, acquisition integration and leverage, energy-sector weakness, foreign-exchange exposure, and ongoing litigation. The 360Value putative class action alleging underinsurance-related misconduct remained unresolved; the company said the outcome and potential liability could not then be estimated. Goodwill was $3,864.3, including $2,389.5 in Energy and Specialized Markets; the annual impairment test found no impairment, but the auditor identified that segment’s goodwill valuation as a critical audit matter.
The company adopted lease accounting Topic 842 in 2019, recognizing operating lease right-of-use assets and liabilities. Management and the auditor reported effective internal control over financial reporting; the 2019 acquisitions were excluded from management’s control assessment during integration.
Investor verification priorities
- Track the patent litigation appeal, injunction’s commercial impact, and any additional damages or fees beyond the recorded $125.0 reserve.
- Review developments, potential exposure, and procedural status in the 360Value litigation.
- Assess whether acquisition-related earn-outs, integration costs, and acquired-business performance support the strategic and financial rationale for the acquisitions.
- Monitor organic growth, margins, and customer concentration, particularly in U.S. P&C insurance and Energy and Specialized Markets.
- Evaluate debt levels, refinancing and interest-rate exposure, covenant headroom, and capital allocation among acquisitions, repurchases, and dividends.
- Check the completed held-for-sale transactions and the continuing effects of the product injunction and business dispositions.