Verisk Analytics, Inc., Reports Third-Quarter 2014 Financial Results

JERSEY CITY, N.J., October 28, 2014 — Verisk Analytics, Inc. (Nasdaq:VRSK), a leading source of data and analytics about risk, today announced results for the fiscal quarter ended September 30, 2014.

Scott Stephenson, president and chief executive officer, said, "Our third-quarter revenue growth was good, driven by very strong performance in our healthcare and financial services businesses. Our healthcare team continued to execute and as a result we remain comfortable with our expectation for mid-teens growth at Verisk Health for the full-year 2014. Our insurance solutions remain well positioned in the market and are valued by our customers.

We have recently completed our annual strategic reviews with all of our business units, and I am very pleased with the opportunities we see over the next five years to innovate and drive profitable growth. While we continue to be disciplined in our use of shareholder capital, our interest in acquisitions with a strategic fit remains strong."

Financial Highlights

  • Total revenue from continuing operations increased 8.9% in third-quarter 2014 compared with third-quarter 2013. Decision Analytics revenue from continuing operations increased 11.8% in the quarter, while Risk Assessment revenue increased 4.1%.
  • EBITDA from continuing operations increased 6.2% to $211.3 million for third-quarter 2014, with an EBITDA margin from continuing operations of 47.1%.
  • Diluted GAAP earnings per share (diluted GAAP EPS) were $0.58 for third-quarter 2014. Diluted adjusted earnings per share from continuing operations (diluted adjusted EPS from continuing operations) were $0.64 for third-quarter 2014, an increase of 4.9% compared with the same period in 2013.
  • Free cash flow year to date, normalized for the items discussed below, decreased 6.0% to $262.5 million.

Table 1: Summary of Results
(in thousands, except per share amounts)

  Three Months Ended         Nine Months Ended      
  September 30,         September 30,      
  2014   2013   Change   2014   2013   Change
Revenues from continuing operations $ 448,665     $ 411,927     8.9 %   $ 1,281,862     $ 1,178,980     8.7 %
EBITDA from continuing operations $ 211,343     $ 199,063     6.2 %   $ 588,398     $ 555,513     5.9 %
Net income $ 99,015     $ 96,441     2.7 %   $ 302,672     $ 261,157     15.9 %
Adjusted net income from continuing operations $ 107,811     $ 104,354     3.3 %   $ 297,979     $ 286,549     4.0 %
Diluted GAAP EPS $ 0.58     $ 0.56     3.6 %   $ 1.78     $ 1.51     17.9 %
Diluted adjusted EPS from continuing operations $ 0.64     $ 0.61     4.9 %   $ 1.75     $ 1.66     5.4 %

 

Revenue

Table 2: Decision Analytics Revenues by Category
(in thousands)

  Three Months Ended         Nine Months Ended      
  September 30,         September 30,      
  2014   2013   Change   2014   2013   Change
Insurance $ 149,496     $ 140,771     6.2 %   $ 443,757     $ 401,105     10.6 %
Financial services   25,258       21,379     18.1 %     68,111       58,226     17.0 %
Healthcare   91,900       73,612     24.8 %     220,888       193,748     14.0 %
Specialized markets   20,557       21,110     (2.6 )%     63,387       63,974     (0.9 )%
Total Decision Analytics $ 287,211     $ 256,872     11.8 %   $ 796,143     $ 717,053     11.0 %

Within the Decision Analytics segment, revenue from continuing operations grew 11.8% in third-quarter 2014. In the quarter, Decision Analytics revenue from continuing operations represented approximately 64% of total revenue from continuing operations.

Within the insurance category, revenue growth was 6.2% for the third quarter of 2014. The increase was driven by strong growth in loss quantification solutions. Claims, catastrophe modeling, and underwriting also contributed to growth in the quarter.

In the financial services category, revenue from continuing operations increased 18.1% in third-quarter 2014 based on continued strong demand for our solutions.

In the healthcare category, revenue in the third quarter grew 24.8%, driven by strong growth in revenue and quality intelligence and payment accuracy solutions. Enterprise analytics solutions also contributed to growth in the quarter. Revenue growth reflected higher volumes and continued expansion of solutions sold to existing customers.

In the specialized markets category, revenue decreased 2.6% in third-quarter 2014. Growth in environmental health and safety solutions and commercial climate solutions was more than offset by the continued cycling of a large government contract discussed in previous quarters.

 

Table 3: Risk Assessment Revenues by Category
(in thousands)

  Three Months Ended         Nine Months Ended      
  September 30,         September 30,      
  2014   2013   Change   2014   2013   Change
Industry-standard insurance programs $ 122,830     $ 118,234     3.9 %   $ 369,841     $ 351,973     5.1 %
Property-specific rating and underwriting information   38,624       36,821     4.9 %     115,878       109,954     5.4 %
Total Risk Assessment $ 161,454     $ 155,055     4.1 %   $ 485,719     $ 461,927     5.2 %

Within the Risk Assessment segment, revenue grew 4.1% in the quarter.

Revenue growth in industry-standard insurance programs was 3.9%, resulting primarily from the annual effect of growth in 2014 invoices effective from January 1 as well as growth from new solutions. This growth was partially offset by lower revenue from reinsurance projects.

Property-specific rating and underwriting information revenue grew 4.9% in the third quarter. Growth was due to new sales resulting in higher committed volumes.

Cost of Revenue
Cost of revenue from continuing operations increased 15.7% in third-quarter 2014 compared with third-quarter 2013. The year-over-year increase relates to meeting customer demand in our healthcare business. Investments in people, data, and technology, in support of the growth of our businesses, also contributed to the increase. For third-quarter 2014, cost of revenue from continuing operations increased 22.6% for Decision Analytics and 1.2% for Risk Assessment

Selling, General, and Administrative
Selling, general, and administrative expense, or SG&A, from continuing operations decreased 1.1% in third-quarter 2014. The decrease was due to good expense management and lower pension costs. SG&A declined in the quarter despite $2.8 million in professional services fees related to the announced EagleView Technology Corporation acquisition. In the quarter, SG&A from continuing operations increased 3.9% for Decision Analytics and decreased 10.6% for Risk Assessment.

 

EBITDA

Table 4: Segment EBITDA
(in thousands)

  Three Months Ended         Nine Months Ended      
  September 30,         September 30,      
  2014   2013   Change   2014   2013   Change
Decision Analytics $ 118,547        $ 113,646     4.3 %   $ 311,021         $ 297,688     4.5 %
EBITDA margin from continuing operations   41.3 %     44.2 %           39.1 %     41.5 %      
Risk Assessment $ 92,796        $ 85,417     8.6 %   $ 277,377         $ 257,825     7.6 %
EBITDA margin from continuing operations   57.5 %     55.1 %           57.1 %     55.8 %      
Total EBITDA from continuing operations $ 211,343         $ 199,063     6.2 %   $ 588,398         $ 555,513     5.9 %
EBITDA margin from continuing operations   47.1 %     48.3 %           45.9 %     47.1 %      

Decision Analytics EBITDA from continuing operations increased 4.3% in third-quarter 2014, and Risk Assessment EBITDA grew 8.6% compared with the same period in the previous year.

The third-quarter 2014 EBITDA margin from continuing operations for Decision Analytics decreased to 41.3% from 44.2% in third-quarter 2013. The decrease was primarily the result of increased costs in our healthcare business and higher professional services fees related to our announced acquisition of EagleView Technology Corporation.

The third-quarter 2014 EBITDA margin in Risk Assessment increased to 57.5% from 55.1% in third-quarter 2013 as a result of the previously discussed revenue growth, good expense management, and lower pension costs.

Net Income and Adjusted Net Income
Net income increased 2.7% in third-quarter 2014. Adjusted net income from continuing operations grew 3.3% for third-quarter 2014.

Cash Flow
For the nine-month period ended September 30, 2014, free cash flow, defined as cash provided by operating activities less capital expenditures, adjusted for the sale of our mortgage services business and the timing of excess tax benefits from exercised stock options in first-quarter 2013, declined 6.0% compared with the prior-year period to $262.5 million and represented 45% of EBITDA from continuing operations in the first nine months of 2014, as lower operating cash flow was partially offset by lower capital expenditures.

For the nine-month period ended September 30, 2014, net cash provided by operating activities was $378.6 million, a decrease of $7.8 million , or 2.0%, compared with the same period in 2013. Cash provided by operations as reported was affected by the sale of our mortgage services business and the timing of excess tax benefits from exercised stock options in first-quarter 2013. Adjusted for those items, the decline year to date was 5.1%.

Capital expenditures were $103.0 million in the nine months ended September 30, 2014, a decrease of $4.9 million over the same period in 2013. Capital expenditures were 8.0% of revenue for the nine months ended September 30, 2014.

Share Repurchases
The company continued to balance internal investment and acquisition initiatives with share repurchases. In third-quarter 2014, the company repurchased shares for a total cost of $65.9 million at an average price of $62.75. At September 30, 2014, the company had $280.3 million remaining under its share repurchase authorization.

Conference Call
Verisk’s management team will host a live audio webcast on Wednesday, October 29, 2014, at 8:30 a.m. Eastern time (5:30 a.m. Pacific time) to discuss the financial results and business highlights. All interested parties are invited to listen to the live event via webcast on the Verisk investor website at http://investor.verisk.com. The discussion is also available through dial-in number 1-877-755-3792 for U.S./Canada participants or 512-961-6560 for international participants.

A replay of the webcast will be available for 30 days on the Verisk investor website and also through the conference call number 1-855-859-2056 for U.S./Canada participants or 404-537-3406 for international participants using Conference ID # 19212245.

About Verisk Analytics
Verisk Analytics (Nasdaq:VRSK) is a leading provider of information about risk to professionals in insurance, healthcare, financial services, government, and risk management. Using advanced technologies to collect and analyze billions of records, Verisk Analytics draws on vast industry expertise and unique proprietary data sets to provide predictive analytics and decision support solutions in fraud prevention, actuarial science, insurance coverages, fire protection, catastrophe and weather risk, data management, and many other fields. In the United States and around the world, Verisk Analytics helps customers protect people, property, and financial assets. For more information, visit www.verisk.com.

Forward-Looking Statements
This release contains forward-looking statements. These statements relate to future events or to future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as “may,” “could,” “expect,” “intend,” “plan,” “target,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of these terms or other comparable terminology. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties, and other factors that are, in some cases, beyond our control and that could materially affect actual results, levels of activity, performance, or achievements.

Other that could materially affect actual results, levels of activity, performance, or achievements can be found in Verisk’s quarterly reports on Form 10-Q, annual reports on Form 10-K, and current reports on Form 8-K filed with the Securities and Exchange Commission. If any of these risks or uncertainties materialize or if our underlying assumptions prove to be incorrect, actual results may vary significantly from what we projected. Any forward-looking statement in this release reflects our current views with respect to future events and is subject to these and other risks, uncertainties, and assumptions relating to our operations, results of operations, growth strategy, and liquidity. We assume no obligation to publicly update or revise these forward-looking statements for any reason, whether as a result of new information, future events, or otherwise.

Notes Regarding the Use of Non-GAAP Financial Measures
The company has provided certain non-GAAP financial information as supplemental information regarding its operating results. These measures are not in accordance with, or an alternative for, U.S. GAAP and may be different from non-GAAP measures reported by other companies. The company believes that its presentation of non-GAAP measures, such as EBITDA, EBITDA margin, adjusted net income, and adjusted EPS, provides useful information to management and investors regarding certain financial and business trends relating to its financial condition and results of operations. In addition, the company’s management uses these measures for reviewing the financial results of the company and for budgeting and planning purposes.

Table 5: EBITDA Reconciliation
(in thousands)

  Three Months Ended         Nine Months Ended      
  September 30,         September 30,      
  2014   2013   Change   2014   2013   Change
Net income $ 99,015     $ 96,441     2.7 %   $ 302,672     $ 261,157     15.9 %
Depreciation and amortization of fixed and intangible assets   36,138       32,003     12.9 %     105,075       96,090     9.4 %
Interest expense   17,498       18,692     (6.4 )%     52,396       58,486     (10.4 )%
Provision for income taxes   58,692       53,474     9.8 %     159,372       144,998     9.9 %
less:  Discontinued operations, net of tax         (1,547 )   (100.0 )%     (31,117 )     (5,218 )   496.3 %
EBITDA from continuing operations $ 211,343     $ 199,063     6.2 %   $ 588,398     $ 555,513     5.9 %

EBITDA is a financial measure that management uses to evaluate the performance of our segments. In all periods shown here and going forward, the company defines “EBITDA” as net income before interest expense, income taxes, and depreciation and amortization of fixed and intangible assets. In previous periods, this measure also excluded investment income and realized gain on securities, net.

Although securities analysts, lenders, and others frequently use EBITDA in their evaluation of companies, EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of our statement of cash flow reported under U.S. GAAP. Management uses EBITDA in conjunction with traditional U.S. GAAP operating performance measures as part of its overall assessment of company performance. Some of these limitations are as follows:

  • EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments.
  • EBITDA does not reflect changes in, or cash requirement for, our working capital needs.
  • Although depreciation and amortization are noncash charges, the assets being depreciated and amortized often will have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements.
  • Other companies in our industry may calculate EBITDA differently than we do, limiting the usefulness of their calculations as comparative measures.

Table 6: Net Income and Adjusted Net Income from Continuing Operations
(in thousands, except per share amounts)

  Three Months Ended         Nine Months Ended      
  September 30,         September 30,      
  2014   2013   Change   2014   2013   Change
Net income $ 99,015     $ 96,441     2.7 %   $ 302,672     $ 261,157     15.9 %
plus:  Amortization of intangible assets   14,187       15,258             42,620       49,371        
less:  Income tax effect on amortization of intangible assets   (5,391 )     (5,798 )           (16,196 )     (18,761 )      
less:  Discontinued operations, net of tax         (1,547 )           (31,117 )     (5,218 )      
Adjusted net income from continuing operations $ 107,811        $ 104,354     3.3 %   $ 297,979     $ 286,549     4.0 %
                                           
Basic adjusted EPS from continuing operations $ 0.65        $ 0.62     4.8 %   $ 1.79     $ 1.70     5.3 %
Diluted adjusted EPS from continuing operations $ 0.64        $ 0.61     4.9 %   $ 1.75     $ 1.66     5.4 %
                                           
Weighted average shares outstanding (in millions)                                          
Basic   166.2       168.0             166.5       168.1        
Diluted   169.5       172.2             169.8       172.5        

 


 

Attached Financial Statements

Please refer to the full Form 10-Q filing for the complete financial statements and related notes.

 

VERISK ANALYTICS, INC.
CONSOLIDATED BALANCE SHEETS
As of September 30, 2014 (Unaudited) and December 31, 2013

  2014   2013
  (unaudited)        
  (In thousands, except for
share and per share data)

ASSETS

Current assets:              
Cash and cash equivalents $ 432,490     $ 165,801  
Available-for-sale securities   3,730       3,911  
Accounts receivable, net of allowance for doubtful accounts of $7,287 and $4,415, respectively   188,711       158,547  
Prepaid expenses   31,150       25,657  
Deferred income taxes, net   5,076       5,077  
Income taxes receivable   30,112       67,346  
Other current assets   14,383       34,681  
Current assets held-for-sale         13,825  
Total current assets   705,652       474,845  
Noncurrent assets:              
Fixed assets, net   281,347       233,373  
Intangible assets, net   406,560       447,618  
Goodwill   1,184,374       1,181,681  
Pension assets   72,512       60,955  
Other assets   27,255       20,034  
Noncurrent assets held-for-sale         85,945  
Total assets $ 2,677,700     $ 2,504,451  
               

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:              
Accounts payable and accrued liabilities $ 164,288     $ 188,264  
Short-term debt and current portion of long-term debt   140,455       4,448  
Pension and postretirement benefits, current   2,437       2,437  
Fees received in advance   254,160       226,581  
Current liabilities held-for-sale         9,449  
Total current liabilities   561,340       431,179  
Noncurrent liabilities:              
Long-term debt   1,136,205       1,271,439  
Pension benefits   12,401       13,007  
Postretirement benefits   3,611       2,061  
Deferred income taxes, net   194,871       198,604  
Other liabilities   43,288       36,043  
Noncurrent liabilities held-for-sale         4,529  
Total liabilities   1,951,716       1,956,862  
Commitments and contingencies              
Stockholders’ equity:              
Class A common stock, $.001 par value; 1,200,000,000 shares authorized; 544,003,038 shares issued and 165,562,900 and 167,457,927 outstanding, respectively   137       137  
Unearned KSOP contributions   (197 )     (306 )
Additional paid-in capital   1,256,541       1,202,106  
Treasury stock, at cost, 378,440,138 and 376,545,111 shares, respectively   (2,044,415 )     (1,864,967 )
Retained earnings   1,556,779       1,254,107  
Accumulated other comprehensive losses   (42,861 )     (43,488 )
Total stockholders’ equity   725,984       547,589  
Total liabilities and stockholders’ equity $ 2,677,700     $ 2,504,451  

 

 

VERISK ANALYTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three and Nine Months Ended September 30, 2014 and 2013

  Three Months Ended September 30,   Nine Months Ended September 30,
  2014   2013   2014   2013
  (In thousands, except for share and per share data)
Revenues $ 448,665     $ 411,927     $ 1,281,862     $ 1,178,980  
Expenses:                              
Cost of revenues (exclusive of items shown separately below)   180,873       156,306       523,016       452,367  
Selling, general and administrative   56,164       56,783       170,372       171,303  
Depreciation and amortization of fixed assets   21,951       16,745       62,455       46,719  
Amortization of intangible assets   14,187       15,258       42,620       49,371  
Total expenses   273,175       245,092       798,463       719,760  
Operating income   175,490       166,835       483,399       459,220  
Other income (expense):                              
Investment income and others   (285 )     225       (76 )     203  
Interest expense   (17,498 )     (18,692 )     (52,396 )     (58,486 )
Total other expense, net   (17,783 )     (18,467 )     (52,472 )     (58,283 )
Income before income taxes   157,707       148,368       430,927       400,937  
Provision for income taxes   (58,692 )     (53,474 )     (159,372 )     (144,998 )
Income from continuing operations   99,015       94,894       271,555       255,939  
Income from discontinued operations, net of tax of $0 and $1,211, and $23,365 and $4,088, for the three and nine months ended, September 30, 2014 and September 30, 2013, respectively         1,547       31,117       5,218  
Net income $ 99,015     $ 96,441     $ 302,672     $ 261,157  
Basic net income per share:                              
Income from continuing operations $ 0.60     $ 0.56     $ 1.63     $ 1.52  
Income from discontinued operations         0.01       0.19       0.03  
Basic net income per share $ 0.60     $ 0.57     $ 1.82     $ 1.55  
Diluted net income per share:                              
Income from continuing operations $ 0.58     $ 0.55     $ 1.60     $ 1.48  
Income from discontinued operations         0.01       0.18       0.03  
Diluted net income per share $ 0.58     $ 0.56     $ 1.78     $ 1.51  
Weighted average shares outstanding:                              
Basic   166,187,540       168,044,100       166,504,384       168,089,919  
Diluted   169,522,448       172,154,553       169,815,867       172,460,960  




VERISK ANALYTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended September 30, 2014 and 2013

 

2014

 

2013

  (In thousands)
Cash flows from operating activities:              
Net income $ 302,672     $ 261,157  
Adjustments to reconcile net income to net cash provided by operating activities:              
Depreciation and amortization of fixed assets   63,450       49,729  
Amortization of intangible assets   42,731       49,796  
Amortization of debt issuance costs and original issue discount   1,989       2,048  
Allowance for doubtful accounts   953       1,188  
KSOP compensation expense   11,613       11,174  
Stock based compensation   16,323       16,745  
Gain on sale of discontinued operations   (65,410 )      
Realized (gain) loss on available-for-sale securities, net   (122 )     99  
Deferred income taxes   (3,348 )     5,888  
Loss on disposal of fixed assets   510       476  
Excess tax benefits from exercised stock options and restricted stock awards   (16,665 )     (81,689 )
Other operating activities, net         448  
Changes in assets and liabilities, net of effects from acquisitions:              
Accounts receivable   (23,530 )     9,475  
Prepaid expenses and other assets   (12,102 )     (4,727 )
Income taxes   45,369       48,554  
Accounts payable and accrued liabilities   (2,164 )     12,267  
Fees received in advance   26,651       43,372  
Pension and postretirement benefits   (9,763 )     (6,532 )
Other liabilities   (522 )     (33,016 )
Net cash provided by operating activities   378,635       386,452  
Cash flows from investing activities:              
Acquisitions   (4,001 )     (983 )
Purchase of non-controlling interest in non-public companies   (5,000 )      
Proceeds from sale of discontinued operations   151,170        
Proceeds from release of acquisition related escrows         280  
Purchases of fixed assets   (102,992 )     (107,915 )
Purchases of available-for-sale securities   (83 )     (5,003 )
Proceeds from sales and maturities of available-for-sale securities   381       5,825  
Other investing activities, net         439  
Net cash provided by (used in) investing activities   39,475       (107,357 )
Cash flows from financing activities:              
Repayment of current portion of long-term debt         (145,000 )
Repayment of short-term debt, net         (10,000 )
Repurchases of Class A common stock   (183,093 )     (160,970 )
Excess tax benefits from exercised stock options and restricted stock awards   16,665       81,689  
Proceeds from stock options exercised   20,855       51,326  
Net share settlement of restricted stock awards   (1,613 )      
Other financing activities, net   (4,448 )     (5,350 )
Net cash used in financing activities   (151,634 )     (188,305 )
Effect of exchange rate changes   213       (406 )
Increase in cash and cash equivalents   266,689       90,384  
Cash and cash equivalents, beginning of period   165,801       89,819  
Cash and cash equivalents, end of period $ 432,490     $ 180,203  
Supplemental disclosures:              
Taxes paid $ 140,462     $ 102,203  
Interest paid $ 50,567     $ 58,018  
Noncash investing and financing activities:              
Repurchases of Class A common stock included in accounts payable and accrued liabilities $ 4,878     $ 2,622  
Deferred tax liability established on date of acquisition $     $ (1,187 )
Tenant improvement included in other liabilities $ 8,856     $  
Capital lease obligations $ 4,682     $ 9,014  
Capital expenditures included in accounts payable and accrued liabilities $ 1,662     $ 2,890  

Contact:

Investor Relations
Eva Huston
Senior Vice President, Treasurer, and Chief Knowledge Officer
Verisk Analytics, Inc.
201-469-2142
eva.huston@verisk.com

David Cohen
Director, Investor Relations and Business Analytics
Verisk Analytics, Inc.
201-469-2174
david.e.cohen@verisk.com

Media
Rich Tauberman
MWW Group (for Verisk Analytics)
202-600-4546
rtauberman@mww.com

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