Verisk Analytics, Inc. — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019; unaudited. Verisk provides data analytics and decision-support solutions across Insurance, Energy and Specialized Markets, and Financial Services.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $652.7 million | $598.7 million | $1,930.3 million | $1,781.2 million |
| Operating income | $75.7 million | $211.1 million | $496.5 million | $617.9 million |
| Net income | $32.9 million | $166.0 million | $317.7 million | $452.5 million |
| Diluted EPS | $0.20 | $0.99 | $1.91 | $2.68 |
| EBITDA, non-GAAP | $149.3 million | $297.9 million | $728.1 million | $857.3 million |
Q3 revenue increased 9.0%; nine-month revenue increased 8.4%. Revenue growth excluding recent acquisitions and the retail analytics disposition was 7.0% in Q3 and 6.5% for the nine-month period. Q3 net income fell 80.2%; nine-month net income fell 29.8%. EBITDA margin was 22.9% in Q3 versus 49.8%, and 37.7% for nine months versus 48.1%.
For nine months, Insurance revenue rose 9.2% to $1,386.5 million, Energy and Specialized Markets rose 7.8% to $413.1 million, and Financial Services rose 1.8% to $130.7 million. Insurance generated about 72% of revenue.
Cash flow, balance sheet and capital
- Nine-month operating cash flow was $779.9 million, compared with $761.0 million. Investing used $274.5 million, including $152.8 million of capital expenditures and $114.0 million for acquisitions and related escrow funding. Financing used $334.8 million.
- Cash and cash equivalents were $311.8 million at September 30, 2019, versus $139.5 million at year-end 2018. Current assets were $831.0 million and current liabilities $973.6 million; management says its working-capital deficit is customary given advance customer billings and deferred revenue.
- Total debt reported on the balance sheet was $2,693.3 million, including finance leases and debt issuance adjustments; long-term debt was $2,668.4 million. The company had $10.0 million drawn on its revolving facility and $984.8 million of available capacity, net of letters of credit. It reported covenant compliance.
- Nine-month dividends paid were $122.7 million and share repurchases were $200.0 million. The company had $227.6 million remaining under its repurchase authorization at quarter-end.
Material changes and unusual items
- A $125.0 million reserve for the Xactware patent litigation was recorded in Q3 selling, general and administrative expense. The reserve followed a jury finding of willful infringement and a $125.0 million damages award. Plaintiffs indicated they would seek up to treble damages; Verisk planned to appeal.
- On October 18, 2019, after quarter-end, the court issued a permanent injunction barring sales of specified Geomni products in combination with Xactimate. The filing says the ultimate resolution and potential impact remain uncertain.
- Acquisition-related earn-out expenses increased by $28.6 million in Q3 and $45.3 million for nine months versus comparable prior periods. A $6.2 million loss was recorded on the sale of the retail analytics solution business.
- Verisk adopted ASC 842 lease accounting on January 1, 2019, recognizing operating lease right-of-use assets and liabilities. At September 30, operating lease assets were $222.1 million and operating lease liabilities totaled $251.7 million.
- 2019 acquisitions included the CaaS business, Keystone Aerial Surveys, and Property Pres Wizard. Subsequent events included the October acquisition of BuildFax for a net cash purchase price of $42.2 million and the planned acquisition of Genscape for approximately $364 million, expected to close in Q4 subject to customary conditions.
Outlook, liquidity and risks
No quantitative earnings or revenue guidance is provided in the filing. Management states that operating cash generation and the revolving credit facility should provide sufficient funds for working capital, capital expenditures, and growth plans. The facility was amended to reduce capacity from $1.5 billion to $1.0 billion and extend maturity to August 2024. Management was monitoring the transition from LIBOR to alternative rates and did not expect it to have a material business impact, while noting the outcome was not yet finalized.
Key risks include the patent litigation, potential additional damages and injunction effects, acquisition earn-out payments, and leverage and covenant constraints. The company also disclosed a putative class action alleging underinsurance related to its 360Value product; motions to dismiss were pending, and the company said it could not estimate the outcome or liability. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Investor verification points
- Track the patent appeal, any treble-damages ruling, and the commercial impact of the permanent injunction.
- Reconcile reported earnings and margins with the $125.0 million litigation reserve, earn-out costs, and other unusual items.
- Review post-quarter borrowing, acquisition funding and integration, including Genscape and BuildFax, against debt capacity and covenant headroom.
- Assess whether underlying organic growth and segment margins remain consistent with management’s historical expectations; no formal numerical guidance is given here.