Verisk Analytics, Inc., Reports First-Quarter 2015 Financial Results

  • Total revenue grew 12.1%; organic revenue growth was 11.5%
  • Income from continuing operations grew 16.9% to $98.7 million; EBITDA from continuing operations grew 18.3% to $216.3 million
  • Diluted GAAP EPS from continuing operations grew 22.0% to $0.61; Diluted adjusted EPS from continuing operations increased 21.8% to $0.67
  • Net cash provided by operating activities less capital expenditures grew 25.2%
  • Announced $2.8 billion acquisition of Wood Mackenzie

JERSEY CITY, N.J., April 28, 2015 — Verisk Analytics, Inc. (Nasdaq:VRSK), a leading data analytics provider, today announced results for the fiscal quarter ended March 31, 2015.

Scott Stephenson, president and chief executive officer, said, “Our first-quarter results were excellent, with organic revenue growth contributions and strong profitability across the company.

Our financial results are evidence of our innovative thinking and the value we add for our customers every day. We received regulatory clearance for our announced acquisition of Wood Mackenzie, and we are looking forward to closing the transaction in the second quarter and having the team join the Verisk family.”

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

  Three Months Ended    
  March 31,    
  2015   2014   Change
Revenues from continuing operations $ 459.4     $ 409.6     12.1 %
EBITDA from continuing operations $ 216.3     $ 182.8     18.3 %
Income from continuing operations $ 98.7     $ 84.5     16.9 %
Adjusted net income from continuing operations $ 107.5     $ 93.3     15.2 %
Diluted GAAP EPS from continuing operations $ 0.61     $ 0.50     22.0 %
Diluted adjusted EPS from continuing operations $ 0.67     $ 0.55     21.8 %

Revenue
Total revenue from continuing operations increased 12.1% in first-quarter 2015 compared with first-quarter 2014. Organic revenue growth was 11.5%. Financial services led the growth in the quarter.

Decision Analytics (DA) segment revenue grew 16.6% in the first quarter of 2015 and represented approximately 62.8% of total revenue from continuing operations.

  • Insurance category revenue increased by 8.7%, led by very strong growth in underwriting solutions and good growth in the other units. 
  • Financial services category revenue from continuing operations increased 67.3%, driven by media-effectiveness project revenue in the quarter and continued strong demand for our analytical solutions and services. Excluding the non-recurring project, growth was 15.1%.
  • Healthcare category revenue growth was 17.5%. Payment accuracy again led the growth in the quarter. The contract language changes discussed last quarter took effect later than anticipated, resulting in higher levels of pass-through revenue in the first quarter than planned. Revenue growth on the new contract language basis was consistent with the reported growth.
  • Specialized markets category revenue returned to growth on an organic basis, as expected, up 4.3%. Including the recently acquired Maplecroft business, growth was 16.5%.

 

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

  Three Months Ended    
  March 31,    
  2015   2014   Change
Insurance $ 153.7     $ 141.4     8.7 %
Financial services   35.2       21.0     67.3 %
Healthcare   75.1       63.9     17.5 %
Specialized markets   24.5       21.0     16.5 %
Total Decision Analytics $ 288.5     $ 247.3     16.6 %

Risk Assessment (RA) segment revenue grew 5.3% in the quarter.

  • Revenue growth in industry-standard insurance programs was 5.5%, resulting primarily from the annual effect of growth in 2015 invoices effective from January 1 and growth from new solutions.
  • Property-specific rating and underwriting information revenue grew 4.8% in the first quarter. Growth was led by an increase in volumes.

 

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

  Three Months Ended    
  March 31,    
  2015   2014   Change
Industry-standard insurance programs $ 130.6     $ 123.8     5.5 %
Property-specific rating and underwriting information   40.3       38.5     4.8 %
Total Risk Assessment $ 170.9     $ 162.3     5.3 %

Expenses and EBITDA
Cost of revenue from continuing operations increased 8.6% compared with first-quarter 2014. The year-over-year increase is largely due to investments in people and data in support of the growth of the business, particularly in Decision Analytics. The acquisition of Maplecroft contributed to the expense growth.>

Selling, general, and administrative expense, or SG&A, from continuing operations increased 2.1% in the quarter. Operating leverage was offset by about $4.4 million of fees related to the Wood Mackenzie acquisition.

Income from continuing operations increased 16.9% to $98.7 million. Total EBITDA from continuing operations increased 18.3%.

  • The 28.9% increase in Decision Analytics EBITDA to $115.3 million was the result of growth in the business and improved operations, particularly at Verisk Health.
  • The first-quarter 2015 EBITDA in Risk Assessment increased 8.2% to $101.0 million as a result of revenue growth and good expense management, including lower people-related costs following the fourth-quarter talent realignment.

Table 4: Segment Results Summary
(in millions)

  Three Months Ended   Three Months Ended    
  March 31, 2015   March 31, 2014   Change
  DA   RA   Total   DA   RA   Total   DA   RA   Total
Revenues $ 288.5     $ 170.9     $ 459.4     $ 247.3     $ 162.3     $ 409.6     16.6 %   5.3 %   12.1 %
Cost of revenue   (133.3 )     (50.9 )     (184.2 )     (119.8 )     (49.9 )     (169.7 )   11.3 %   2.1 %   8.6 %
SG&A   (39.3 )     (19.0 )     (58.3 )     (38.0 )     (19.1 )     (57.1 )   3.1 %   (0.1 )%   2.1 %
Investment income and others   (0.6 )     -       (0.6 )     -       -       -     (100.0 )%   - %   (100.0 )%
EBITDA from continuing operations $ 115.3     $ 101.0     $ 216.3     $ 89.5     $ 93.3     $ 182.8     28.9 %   8.2 %   18.3 %
                                               
EBITDA margin, from continuing operations   40.0 %     59.1 %     47.1 %     36.2 %     57.5 %     44.6 %            

Adjusted EPS
GAAP diluted net income from continuing operations per share were $0.61. Diluted adjusted earnings per share from continuing operations (adjusted EPS) were $0.67 for first-quarter 2015, an increase of 21.8% compared with the same period in 2014. Adjusted EPS increased because of strong operations and a lower share count due in part to the December 2014 accelerated share repurchase, or ASR. This was partially offset by higher fixed asset depreciation and amortization expense following higher capital expenditures in recent years, slightly higher interest costs related to funding the ASR, and a return to a more normalized tax rate.

Free Cash Flow
Free cash flow, defined as cash provided by operating activities less capital expenditures, increased 25.2% to $246.2 million for the three-month period ended March 31, 2015. This represented 113.8% of EBITDA from continuing operations. Capital expenditures decreased 31.5% to $24.8 million in the three months ended March 31, 2015. Capital expenditures were 5.4% of revenue for the three months ended March 31, 2015.

Capital Allocation
Consistent with Verisk's established strategy, the company continued the program of balancing internal investment and acquisition initiatives with share repurchases.

  • The company announced the $2.8 billion acquisition of Wood Mackenzie, which is expected to close in second-quarter 2015.
  • Due to the ASR in December 2014, there were no incremental repurchases in the quarter. At March 31, 2015, the company had $189.8 million remaining under its share repurchase authorization.

Conference Call
Verisk’s management team will host a live audio webcast on Wednesday, April 29, 2015, 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 # 20832908.

About Verisk Analytics
Verisk Analytics (Nasdaq:VRSK) is a leading data analytics provider serving customers 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 factors 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 from continuing operations, adjusted EPS, and free cash flow, 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.

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 5: EBITDA Reconciliation
(in millions)

  Three Months Ended    
  March 31,    
  2015   2014   Change
Income from continuing operations $ 98.7     $ 84.5     16.9 %
Depreciation and amortization of fixed and intangible assets   38.6       33.9     13.5 %
Interest expense   18.2       17.4     4.7 %
Provision for income taxes   60.8       47.0     29.5 %
EBITDA from continuing operations $ 216.3     $ 182.8     18.3 %

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

  Three Months Ended    
  March 31,    
  2015   2014   Change
Income from continuing operations $ 98.7     $ 84.5     16.9 %
plus:  Amortization of intangible assets   14.1       14.2      
less:  Income tax effect on amortization of intangible assets   (5.3 )     (5.4 )    
Adjusted net income from continuing operations $ 107.5      $ 93.3     15.2 %
               
Basic adjusted EPS from continuing operations $ 0.68      $ 0.56     21.4 %
Diluted adjusted EPS from continuing operations $ 0.67      $ 0.55     21.8 %
               
Weighted average shares outstanding              
Basic   158.1       167.0      
Diluted   161.5       170.4      

Table 7: Free Cash Flow Reconciliation
(in millions)

  Three Months Ended    
  March 31,    
  2015   2014   Change
Operating cash flow $ 271.0     $ 232.8     16.4 %
less: Capital expenditures   (24.8 )     (36.1 )   (31.5 )%
Free cash flow $ 246.2     $ 196.7     25.2 %

 

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 March 31, 2015 (Unaudited) and December 31, 2014

  2015   2014
  (unaudited)      
  (In thousands, except for
share and per share data)
ASSETS
Current assets:          
Cash and cash equivalents $ 152,847     $ 39,359  
Available-for-sale securities   3,855       3,801  
Accounts receivable, net of allowance for doubtful accounts of $6,627 and $5,995, respectively   226,637       220,668  
Prepaid expenses   29,741       31,496  
Deferred income taxes, net   4,770       4,772  
Income taxes receivable   12,793       65,512  
Other current assets   23,350       18,875  
Total current assets   453,993       384,483  
Noncurrent assets:          
Fixed assets, net   303,829       302,273  
Intangible assets, net   392,335       406,476  
Goodwill   1,207,144       1,207,146  
Pension assets   22,723       18,589  
Other assets   24,475       26,363  
Total assets $ 2,404,499     $ 2,345,330  
           
LIABILITIES AND STOCKHOLDERS` EQUITY
Current liabilities:          
Accounts payable and accrued liabilities $ 142,471     $ 180,726  
Short-term debt and current portion of long-term debt   205,878       336,058  
Pension and postretirement benefits, current   1,894       1,894  
Fees received in advance   359,527       252,592  
Total current liabilities   709,770       771,270  
Noncurrent liabilities:          
Long-term debt   1,100,358       1,100,874  
Pension benefits   13,721       13,805  
Postretirement benefits   2,450       2,410  
Deferred income taxes, net   203,383       202,540  
Other liabilities   43,095       43,388  
Total liabilities   2,072,777       2,134,287  
Commitments and contingencies          
Stockholders` equity:          
Class A common stock, $.001 par value; 1,200,000,000 shares authorized; 544,003,038 shares issued and 158,251,221 and 157,913,227 outstanding, respectively   137       137  
Unearned KSOP contributions   (135 )     (161 )
Additional paid-in capital   1,190,490       1,171,196  
Treasury stock, at cost, 385,751,817 and 386,089,811 shares, respectively   (2,531,547 )     (2,533,764 )
Retained earnings   1,752,835       1,654,149  
Accumulated other comprehensive losses   (80,058 )     (80,514 )
Total stockholders` equity   331,722       211,043  
Total liabilities and stockholders` equity $ 2,404,499     $ 2,345,330  

 

VERISK ANALYTICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

For the Three Months Ended March 31, 2015 and 2014

  Three Months Ended March 31,
  2015   2014
  (In thousands, except for share and per share data)
Revenues $ 459,397     $ 409,643  
Expenses:          
Cost of revenues (exclusive of items shown separately below)   184,216       169,673  
Selling, general and administrative   58,306       57,134  
Depreciation and amortization of fixed assets   24,442       19,781  
Amortization of intangible assets   14,141       14,212  
Total expenses   281,105       260,800  
Operating income   178,292       148,843  
Other income (expense):          
Investment income and others, net   (538 )     9  
Interest expense   (18,262 )     (17,439 )
Total other expense, net   (18,800 )     (17,430 )
Income before income taxes   159,492       131,413  
Provision for income taxes   (60,806 )     (46,972 )
Income from continuing operations   98,686       84,441  
Income from discontinued operations, net of tax of $0 and $23,365, respectively   -       31,117  
Net income $ 98,686     $ 115,558  
Basic net income per share:          
Income from continuing operations $ 0.62     $ 0.50  
Income from discontinued operations   -       0.19  
Basic net income per share $ 0.62     $ 0.69  
Diluted net income per share:          
Income from continuing operations $ 0.61     $ 0.50  
Income from discontinued operations   -       0.18  
Diluted net income per share $ 0.61     $ 0.68  
Weighted average shares outstanding:          
Basic   158,087,919       166,981,982  
Diluted   161,481,213       170,421,489  

 

VERISK ANALYTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For the Three Months Ended March 31, 2015 and 2014

  2015   2014
  (In thousands)
Cash flows from operating activities:          
Net income $ 98,686     $ 115,558  
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization of fixed assets   24,442       20,776  
Amortization of intangible assets   14,141       14,323  
Amortization of debt issuance costs and original issue discount   1,195       661  
Allowance for doubtful accounts   125       (227 )
KSOP compensation expense   3,821       3,901  
Stock based compensation   4,224       4,983  
Gain on sale of discontinued operations   -       (65,410 )
Realized loss on available-for-sale securities, net   6       11  
Deferred income taxes   506       (3,640 )
Loss on disposal of fixed assets   15       683  
Changes in assets and liabilities, net of effects from acquisitions:          
Accounts receivable   (6,094 )     (7,078 )
Prepaid expenses and other assets   2,861       (2,632 )
Income taxes   56,951       71,276  
Accounts payable and accrued liabilities   (33,169 )     (32,886 )
Fees received in advance   106,935       116,318  
Pension and postretirement benefits   (3,264 )     (3,509 )
Other liabilities   (391 )     (280 )
Net cash provided by operating activities   270,990       232,828  
Cash flows from investing activities:          
Acquisitions, net of cash acquired of $232 and $0, respectively   (405 )     (4,001 )
Purchase of non-controlling interest in non-public companies   (101 )     (5,000 )
Proceeds from sale of discontinued operations   -       155,000  
Capital expenditures   (24,760 )     (36,144 )
Purchases of available-for-sale securities   (8 )     (6 )
Proceeds from sales and maturities of available-for-sale securities   49       16  
Net cash (used in) provided by investing activities   (25,225 )     109,865  
Cash flows from financing activities:          
Repayment of short-term debt, net   (130,000 )     -  
Payment of debt issuance costs   (9,100 )     -  
Repurchases of Class A common stock   -       (88,161 )
Proceeds from stock options exercised   8,336       7,804  
Other financing activities, net   (1,293 )     (1,268 )
Net cash used in financing activities   (132,057 )     (81,625 )
Effect of exchange rate changes   (220 )     507  
Increase in cash and cash equivalents   113,488       261,575  
Cash and cash equivalents, beginning of period   39,359       165,801  
Cash and cash equivalents, end of period $ 152,847     $ 427,376  
Supplemental disclosures:          
Taxes paid $ 3,258     $ 2,592  
Interest paid $ 17,328     $ 16,957  
Noncash investing and financing activities:          
Repurchases of Class A common stock included in accounts payable and accrued liabilities $ -     $ 3,605  
Tenant improvement included in other liabilities $ -     $ 8,799  
Capital lease obligations $ 416     $ 510  
Capital expenditures included in accounts payable and accrued liabilities $ 856     $ 622  

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