Verisk Analytics, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; comparisons are with the three months ended March 31, 2012 unless otherwise noted. The company provides proprietary risk data, analytics, and decision-support solutions through its Decision Analytics and Risk Assessment segments. Financial statement amounts below are in millions except per-share data.
Financial performance
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Revenue | $403.3 | $346.5 | +16.4% |
| Operating income | $147.4 | $139.0 | +6.1% |
| Net income | $80.5 | $74.6 | +7.9% |
| Diluted EPS | $0.47 | $0.44 | +6.8% |
| Operating cash flow | $191.3 | $189.6 | +0.9% |
| EBITDA (non-GAAP) | $179.7 | $159.6 | +12.6% |
| EBITDA margin (non-GAAP) | 44.6% | 46.1% | Down 1.5 percentage points |
Operating margin was approximately 36.6%, compared with 40.1% a year earlier. The effective tax rate fell to 36.7% from 39.4%, primarily reflecting tax-planning benefits and the retroactive extension of the R&D tax credit. Interest expense rose 22.6% to $20.1 million, mainly following the 2012 issuance of $350 million of senior notes.
- Decision Analytics: Revenue of $250.7 million, up 24.4%; segment EBITDA of $93.6 million, up 18.1%; EBITDA margin was 37.3%, versus 39.3%.
- Risk Assessment: Revenue of $152.6 million, up 5.3%; segment EBITDA of $86.1 million, up 7.1%; EBITDA margin improved to 56.4% from 55.4%.
Cash, liquidity, and debt
- Cash and cash equivalents were $267.4 million at March 31, 2013, versus $89.8 million at December 31, 2012. Cash plus available-for-sale securities totaled $272.5 million.
- Cash from operations was $191.3 million; investing activities used $27.6 million, including $28.1 million of fixed-asset purchases; financing activities provided $14.3 million. Cash increased $177.5 million during the quarter.
- Total debt was $1.450 billion, including $184.0 million classified as short-term/current and $1.266 billion long-term. The company had no revolving-credit borrowings and $850 million available under its committed facility. It reported compliance with debt covenants.
- Current assets of $552.5 million were below current liabilities of $650.4 million. Management explains that advance customer payments create deferred-revenue liabilities and that the business historically operates with a working-capital deficit.
- The company expected to repay $45 million of private-placement debt maturing in April 2013 during Q2, using operating cash. Expected 2013 capital expenditures were $115 million.
Material changes and management commentary
- Acquisitions made in 2012 contributed $33.4 million of Q1 2013 revenue growth. Excluding those recent acquisitions, revenue rose 6.8% overall: Decision Analytics increased 7.8% and Risk Assessment 5.3%.
- Healthcare revenue grew 93.9%, including $16.7 million from MediConnect; excluding that acquisition, healthcare revenue rose 39.0%. Financial-services revenue increased 28.1% including $16.2 million from Argus, but fell 19.1% excluding Argus, reflecting continued mortgage-market challenges.
- Management attributed lower consolidated and Decision Analytics EBITDA margins to acquisition effects and investment in developing new solutions. Risk Assessment margin improved through operating leverage and cost efficiencies.
- Fees received in advance increased to $314.4 million from $200.7 million at year-end. Management notes that subscription and long-term-contract payments are generally received before revenue is recognized, supporting first-quarter cash generation.
- The company repurchased 381,800 shares for approximately $21.5 million during the quarter; $122.7 million remained authorized. It reported no off-balance-sheet arrangements and no material change in risk factors or market-risk disclosures.
Outlook, risks, and contingencies
- The filing provides no specific revenue, earnings, or margin guidance. Management expected 2013 capital expenditures of $115 million, primarily for technology infrastructure and solution development; quarterly results are not necessarily indicative of full-year results.
- Three putative class actions involving subsidiaries Intellicorp and iiX allege violations of the Fair Credit Reporting Act concerning employment background reports. Plaintiffs seek statutory and other damages. The company said it could not estimate the ultimate outcome or liability; an adverse judgment or settlement could materially affect results, financial position, or cash flows.
- Management states that actual results may differ from estimates and forward-looking statements. It reported effective disclosure controls as of March 31, 2013 and no material change in internal control over financial reporting.
Important facts for investors to verify
- How much reported growth is sustainable and recurring after separating acquisition contributions, particularly in healthcare and financial services.
- Whether margin pressure from acquisitions and solution-development investment eases, and how segment profitability trends.
- The outcome and potential financial exposure from the FCRA class actions, for which no loss estimate was provided.
- Debt maturities and repayment funding, covenant compliance, and the company’s ability to sustain capital spending and share repurchases.
- The quality and timing of operating cash flow, including the contribution from advance customer payments and working-capital movements.