01—Abstract
Summary
Summary of the 10-K filed March 9, 2010. Cited figures are marked; the original filing is the authoritative source.
Verisk Analytics, Inc. (NASDAQ: VRSK) reported 2009 revenues of $1,027.1 milliona, up from $893.6 million in 2008, and net income of $126.6 million, down from $158.2 million.
The results include a one-time, non-cash charge of $57.7 millionb for the accelerated Employee Stock Ownership Plan (ESOP) allocation made in connection with the company's initial public offering, which was completed on October 9, 2009 at $22.00 per share. Verisk describes itself as the largest aggregator and provider of detailed actuarial and underwriting data for U.S. property and casualty insurance risks, and it reports two segments: Risk Assessment (revenues of $524.0 million, up 3.9%) and Decision Analytics (revenues of $503.1 million, up 29.3%), with the latter driven largely by fraud detection and forensic audit services for the mortgage industry. Revenue from subscriptions and long-term agreements was a substantial share of the business, with 71.0% of 2009 revenues described as pre-paid.
Operating income was $302.0 millionc and EBITDA was $373.2 million, or a 36.3% EBITDA margin, compared with 42.0% in 2008. Balance sheet and capital structure changed materially with the reorganization. Stockholders' deficit improved to $(34.9) million from $(1,009.8) million, after the reversal of $1,064.9 million of redeemable common stock.
Total debt was $594.2 milliond at year-end 2009, down from $669.8 million, and cash and cash equivalents rose to $71.5 million. The company states it has no plans to pay dividends and has no public share repurchase program. Litigation includes several putative class actions tied to Xactware and iiX, as well as a Hanover indemnification demand of $2.5 million, and management states it cannot yet determine ultimate outcomes for most of these matters.
For investors, the key drivers are the strength of recurring subscription revenue, growth in the Decision Analytics segment, the margin pressure from the IPO-related ESOP charge and higher pension costs, and the rise in interest expense to $35.3 million. The filing also notes a $420.0 million committed syndicated revolving credit facility and a 52.2% effective tax rate for 2009, which was elevated by non-deductible IPO-related costs.
02—Key points
Key Highlights
- Revenues rose to $1,027.1 million in 2009 from $893.6 million in 2008, and net income was $126.6 million versus $158.2 million in 2008.
- A one-time, non-cash ESOP allocation charge of $57.7 million was recorded in connection with the October 2009 IPO and reduced EBITDA margin by 5.6 percentage points.
- Decision Analytics revenues grew 29.3% to $503.1 million, led by fraud identification and detection solutions, which rose 27.6% to $273.1 million.
- Risk Assessment revenues grew 3.9% to $524.0 million, with industry-standard insurance programs contributing $341.1 million.
- Approximately 71.0% of 2009 revenues were from annual subscriptions or long-term agreements that are typically pre-paid, supporting cash flow with operating cash flow of $326.4 million.
- The stockholders' deficit improved to $(34.9) million from $(1,009.8) million after the reversal of $1,064.9 million of redeemable common stock following the reorganization.
- Total debt declined to $594.2 million from $669.8 million, and the company entered into a $420.0 million committed syndicated revolving credit facility maturing July 2, 2012.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2009filed March 9, 2010Financial Statements
| Revenue | $1.03B |
| R&D Expenses | $14.11M |
| SG&A Expenses | $162.60M |
| Operating Expenses | $725.10M |
| Operating Income | $302.01M |
| Interest Expense | $35.27M |
| Net Income | $126.61M |
| EPS (Basic) | $0.72 |
| EPS (Diluted) | $0.70 |
| Shares Outstanding (Basic) | 174.77M |
| Shares Outstanding (Diluted) | 182.17M |
05—Questions
Frequently Asked Questions
What drove the decline in net income in 2009 despite higher revenue?
Net income fell to $126.6 million from $158.2 million, mainly because of the $57.7 million non-recurring, non-cash ESOP allocation charge recorded in connection with the IPO. Operating expenses also rose, including higher cost of revenues tied to salaries, pension costs, and third-party data, and interest expense increased to $35.3 million from $31.3 million.
What is the outlook for the Risk Assessment segment?
The filing states that premium growth in the P&C insurance industry has slowed since 2005 and that the company expects little or no growth for most insurance lines in 2010. It also notes that the current economic environment could negatively affect buying demand for its solutions.
Does Verisk plan to pay dividends or repurchase shares?
No. The company states it has not paid or declared cash dividends in the two most recent fiscal years and does not intend to pay dividends on its Class A or Class B common stock. It has no publicly announced share repurchase plan and has not repurchased shares since its IPO.
How is the company's debt structured and what are its covenants?
Total debt was $594.2 million at December 31, 2009, including capital leases. The syndicated revolving credit facility is committed and carries interest at LIBOR plus 2.50%, with financial covenants requiring a consolidated interest coverage ratio of at least 3.0 to 1.0 and a funded debt leverage ratio below 3.0 to 1.0. The company states it was in compliance with these covenants as of December 31, 2009.
What are the main litigation risks disclosed?
Verisk faces several putative class actions, including Schafer and Mornay related to Xactware, the Sharon Taylor iiX case under the Driver Privacy Protection Act, and an Interthinx employment class action. Hanover Insurance Group has demanded $2.5 million in reimbursement tied to the Hensley class action, which the company disputes. Management states it cannot currently determine the ultimate resolution or estimate potential liability for several of these matters.
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