Verisk Reports Fourth-Quarter 2018 Financial Results
- Consolidated revenue grew 7.7% to $614 million; organic constant currency revenue growth, a non-GAAP measure, was 5.4%. Normalizing for the revenue associated with exceptional storm activity in the prior-year period, organic constant currency revenue would have grown 6.9%.
- Net income was $146 million; adjusted EBITDA, a non-GAAP measure, was $289 million.
- Net income declined 28.5%, reflecting an $89 million tax benefit in the fourth quarter of 2017 due to tax reform. Equalizing the fourth-quarter 2017 effective tax rate, adjusted net income would have increased 5.6%. Organic constant currency adjusted EBITDA growth was 4.2%. Normalizing for the revenue associated with exceptional storm activity, organic constant currency adjusted EBITDA would have grown 7.3%.
- Diluted GAAP earnings per share (GAAP EPS) were $0.87; diluted adjusted earnings per share (adjusted EPS), a non-GAAP measure, were $1.04.
- Net cash provided by operating activities was $934 million for 2018; free cash flow, a non-GAAP measure, was $703 million for 2018.
- The Board of Directors declared a cash dividend of 25 cents per share, the first in the company’s history.
- The company repurchased $156 million of its shares for the quarter ended December 31, 2018.
JERSEY CITY, N.J., February 19, 2019 — Verisk (Nasdaq:VRSK), a leading data analytics provider, today announced results for the fourth quarter and fiscal year ended December 31, 2018. Scott Stephenson, chairman, president, and CEO, said, “We are pleased to deliver another strong quarter of profitable growth at Verisk. Solid growth in our Insurance and Energy and Specialized Markets segments offset some headwinds in Financial Services, demonstrating the durability of our business model. Our engagement with clients and our pace of innovation remain exceptional, and we are well positioned to continue to execute on our strategies to drive profitable growth and create value for our shareholders over the long term. We are particularly pleased to deliver a new source of value to our shareholders with the dividend initiation.”
Lee Shavel, CFO and executive vice president, said, “Normalizing for exceptional storm revenue in the prior-year period, Verisk delivered organic constant currency revenue growth of 6.9% and organic constant currency adjusted EBITDA growth of 7.3%. The dividend underscores the stability of our business and our capital management discipline. We continue to have sufficient capital to support our growth objectives.”
Total revenue increased 7.7% in fourth-quarter 2018 compared with fourth-quarter 2017. Organic constant currency revenue growth was 5.4%. Excluding the impact of nonrecurring revenue benefit related to extreme weather in the fourth quarter of 2017 discussed below, revenue on an organic constant currency basis would have grown 6.9%.
Insurance segment revenue grew 7.6% in the fourth quarter of 2018 and 6.4% on an organic constant currency basis. Excluding the impact of approximately $8 million in storm-related revenue in the fourth quarter of 2017, Insurance revenue on an organic constant currency basis would have grown 8.5% in the quarter.
- Underwriting & rating revenue increased 7.4% in the quarter and 7.0% on an organic constant currency basis, resulting primarily from increases within its underwriting and catastrophe modeling solutions revenue.
- Claims revenue grew 8.0% in the quarter and 5.1% on an organic constant currency basis. Growth was driven by its claims analytics and repair cost estimating solutions revenue. Excluding the impact of approximately $8 million in storm-related revenue in the fourth quarter of 2017, claims revenue on an organic constant currency basis would have grown 11.7% in the quarter.
Energy and Specialized Markets segment revenue increased 11.7% in the quarter and 5.1% on an organic constant currency basis, as the energy business’s end markets have continued to improve. Our consulting and research businesses both experienced growth. The company also had positive contributions from its environmental health and safety services and weather and climate analytics businesses.
Financial Services segment revenue decreased 1.8% in the quarter and 2.2% on an organic constant currency basis. Solid growth in portfolio management solutions and spend informed analytics were offset by headwinds from tough comparisons with prior-year implementation revenues as well as some timing differences.
Operating Income and Adjusted Organic Constant Currency EBITDA
Operating expenses increased 10.4% to $398 million in the quarter. Operating income increased 2.9% to $216 million in the quarter.
Adjusted EBITDA expenses increased 6.4% compared with fourth-quarter 2017 on an organic constant currency basis. The year-over-year increase was primarily due to salaries and benefits related to innovation and business growth, particularly in the remote imagery business.
Adjusted EBITDA increased 4.2% in the fourth quarter of 2018 on an organic constant currency basis. Organic constant currency adjusted EBITDA margins of 47.8% were down from the fourth-quarter 2017 level of 48.4%, reflecting, in part, higher-margin storm-related revenue in the fourth quarter of 2017. Normalizing for the revenue associated with exceptional storm activity in the prior-year period, organic constant currency adjusted EBITDA would have grown 7.3% and adjusted EBITDA margin would have increased to 47.8% from 47.6% in the prior year period.
Insurance segment operating income increased 5.0% to $199 million in the fourth quarter of 2018. Insurance segment adjusted EBITDA grew 5.8% in the fourth quarter of 2018 on an organic constant currency basis. Normalizing for the revenue associated with exceptional storm activity in the prior-year period, organic constant currency adjusted EBITDA would have grown 9.9%.
Energy and Specialized Markets segment operating income increased 10.3% to $8 million in the fourth quarter of 2018. Energy and Specialized Markets segment adjusted EBITDA grew 4.6% on an organic constant currency basis. Financial Services segment operating income decreased 33.1% to $9 million in the fourth quarter of 2018. Financial Services segment adjusted EBITDA decreased 12.8% on an organic constant currency basis.
Net Income and Earnings Per Share
Net income decreased 28.5% to $146 million, reflecting an $89 million tax benefit in the fourth quarter of 2017 due to tax reform. Diluted GAAP EPS was $0.87 in fourth-quarter 2018, a decrease of 28.7% compared with the same period in 2017. Diluted adjusted EPS was $1.04 in fourth-quarter 2018, a decrease of 21.8% compared with the same period in 2017. Equalizing the fourth-quarter 2017 effective tax rate to that of fourth-quarter 2018, adjusted net income and diluted adjusted EPS would have increased 5.6% and 6.1%, respectively. Diluted adjusted EPS benefited from organic growth in the business, contributions from acquisitions, and lower share count. The benefits were partially offset by increased depreciation and amortization expense and increased interest expense.
Net cash provided by operating activities was $934 million for the year ended December 31, 2018, an increase of 25.7%. Capital expenditures increased 25.9% to $231 million and were 9.6% of revenues for the year ended December 31, 2018. This increase in capital expenditures is primarily related to the purchase of aircraft associated with the remote imagery business and software development to support and improve new and existing products across the organization. Free cash flow was $703 million for the year ended December 31, 2018, an increase of 25.6%.
Free cash flow represented 62.2% of adjusted EBITDA for the year ended December 31, 2018, compared with 54.1% in the prior-year period.
On February 13, 2019, Verisk’s Board of Directors approved the initiation of a cash dividend to shareholders. Verisk will pay a cash dividend of 25 cents per share of common stock issued and outstanding, payable on March 29, 2019, to the holders of record as of March 15, 2019. The establishment of future record and payment dates is subject to the final determination of Verisk’s Board of Directors.
Share Repurchases and Financing Activities
Including the accelerated share repurchase (ASR) settled in fourth-quarter 2018, the company repurchased 1.3 million shares for the fourth-quarter 2018 for a total return of capital to shareholders of $156 million. The company also entered into an additional $75 million ASR agreement, and the associated shares will be delivered and settled in March 2019. At December 31, 2018, the company had $428 million remaining under its share repurchase authorization.
Verisk’s management team will host a live audio webcast on Wednesday, February 20, 2019, at 8:30 a.m. EST (5:30 a.m. PST, 1:30 p.m. GMT) 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 1-512-961-6560 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 1-404-537-3406 for international participants using conference ID #6839406.
Verisk (Nasdaq:VRSK) is a leading data analytics provider serving customers in insurance, energy and specialized markets, and financial services. Using advanced technologies to collect and analyze billions of records, Verisk draws on unique data assets and deep domain expertise to provide first-to-market innovations that are integrated into customer workflows. Verisk offers predictive analytics and decision support solutions to customers in rating, underwriting, claims, catastrophe and weather risk, global risk analytics, natural resources intelligence, economic forecasting, and many other fields. Around the world, Verisk helps customers protect people, property, and financial assets.
Headquartered in Jersey City, N.J., Verisk operates in 30 countries and is a member of Standard & Poor's S&P 500® Index. In 2018, Forbes magazine named Verisk to its World's Best Employers list. For more information, please visit www.verisk.com.
Head of Investor Relations
Edelman (for Verisk)
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. This includes, but is not limited to, Verisk’s expectation and ability to pay a quarterly cash dividend on its common stock in the future, subject to the determination by the Board of Directors, and based on an evaluation of company earnings, financial condition and requirements, business conditions, capital allocation determinations, and other factors, risks, and uncertainties. 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 organic constant currency revenue and organic constant currency revenue growth; EBITDA, EBITDA margin, and EBITDA growth; adjusted EBITDA, adjusted EBITDA margin, and adjusted EBITDA growth on an as-reported, organic, and organic constant currency basis; adjusted net income and adjusted net income growth; basic and diluted adjusted EPS and adjusted EPS growth; and free cash flow and free cash flow growth, 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.
Our operating results reported in U.S. dollars are affected by foreign currency exchange rate fluctuations because the underlying foreign currencies in which we transact change in value over time compared with the U.S. dollar; accordingly, we present certain constant currency financial information to provide a framework to assess how our businesses performed excluding the impact of foreign currency exchange rate fluctuations. We use the term “constant currency” to present results that have been adjusted to exclude foreign currency impact. Foreign currency impact represents the difference in results that are attributable to fluctuations in the currency exchange rates used to convert the results for businesses where the functional currency is not the U.S. dollar. This impact is calculated by translating comparable prior-period year results at the currency exchange rates used in the current period, rather than the exchange rates in effect during the prior period.
Organic revenue, a non-GAAP measure, is defined as revenues excluding the effect of recent acquisitions that have occurred over the past year. An acquisition is included in organic revenue at the beginning of the calendar quarter that occurs subsequent to the one-year anniversary of the acquisition date. Once an acquisition is included in our current-period organic revenue, its comparable prior-year period revenue is also included to calculate organic revenue growth.
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, provision for income taxes, and depreciation and amortization expense. “Organic EBITDA,” a non-GAAP measure, is defined as EBITDA excluding the effect of recent acquisitions. The company also defines “adjusted EBITDA” as EBITDA before nonoperating acquisition-related costs and nonrecurring gain and interest income on the subordinated promissory note.
Although securities analysts, lenders, and others frequently use EBITDA and adjusted EBITDA in their evaluation of companies, EBITDA and adjusted EBITDA have 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 and adjusted 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 and adjusted EBITDA do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments.
- EBITDA and adjusted EBITDA do not reflect changes in, or cash requirements 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; EBITDA and adjusted EBITDA do not reflect any cash requirements for such replacements.
- Other companies in our industry may calculate EBITDA and adjusted EBITDA differently than we do, limiting the usefulness of their calculations as comparative measures.
See Table 5 (below) for a reconciliation of adjusted EBITDA expenses to cost of revenues; selling, general and administrative expense; investment income and others, net; and acquisition-related costs (earn-out). See Table 6 for a reconciliation of adjusted EBITDA to operating income by segment, Table 7 for a reconciliation of adjusted EBITDA margin to operating income margin by segments, Table 8 for a reconciliation of adjusted net income to net income, and Table 9 for a reconciliation of free cash flow to net cash provided by operating activities.