01—Abstract
Summary
Summary of the 10-K filed February 24, 2016. Cited figures are marked; the original filing is the authoritative source.
Verisk Analytics, Inc. (NASDAQ: VRSK) reported revenues of $2,068.0 milliona and net income of $507.6 million for the year ended December 31, 2015, up from $1,746.7 million of revenues and $400.0 million of net income in 2014.
Revenue growth was driven largely by the May 2015 acquisition of Wood Mackenzie; the company stated that recent acquisitions added $219.6 millionb of revenue in 2015, and that excluding them revenues increased $101.7 million, or 5.8%. The company operates two segments: Risk Assessment (33.3% of 2015 revenues, serving U.S. P&C insurers with industry-standard insurance programs and property-specific rating information) and Decision Analytics (66.7% of revenues, spanning insurance, financial services, healthcare, and energy and specialized markets). Approximately 75% of 2015 revenues came from annual subscriptions or long-term agreements, which are typically prepaid.
The Wood Mackenzie acquisition, net cash purchase price of $2,889.6 millionc, was financed largely with debt and equity. Total debt rose to $3,168.0 million at December 31, 2015, from $1,436.9 million a year earlier, and the filing states the leverage ratio (debt to EBITDA) increased from 1.57x at March 31, 2015 to 2.89x. Operating cash flow was $623.7 million, capital expenditures were $166.1 million, and the company repurchased $20.5 million of stock in 2015 versus $778.5 million in 2014.
The company said it had no dividends and does not intend to pay them. The filing also discloses several pending lawsuits, including Fair Credit Reporting Act class actions against subsidiary Intellicorp Records, a patent infringement suit by Eagle View and Pictometry, and antitrust and consumer class actions involving Insurance Services Office, Inc. For these, the company states it cannot determine the ultimate resolution or estimate the liability.
For investors, the key points are the step-up in scale from the Wood Mackenzie acquisition, the higher leverage it created, and the litigation exposure. The filing also notes that the company is exploring strategic alternatives for its Healthcare business, with no assurance of any transaction.
02—Key points
Key Highlights
- Revenues rose to $2,068.0 million in 2015 from $1,746.7 million in 2014, and net income rose to $507.6 million from $400.0 million; diluted EPS was $3.01 versus $2.37.
- Wood Mackenzie, acquired May 19, 2015 for a net cash purchase price of $2,889.6 million, contributed $219.6 million of 2015 revenue from recent acquisitions; excluding them, revenues grew $101.7 million, or 5.8%.
- Total debt increased to $3,168.0 million at year-end 2015 from $1,436.9 million, and the debt-to-EBITDA leverage ratio rose from 1.57x (March 31, 2015) to 2.89x.
- Decision Analytics segment revenue was $1,379.8 million (66.7% of total) and Risk Assessment was $688.2 million (33.3%); energy and specialized markets revenue jumped to $308.8 million from $84.9 million, mainly from acquisitions.
- About 75% of 2015 revenues came from annual subscriptions or long-term agreements, typically prepaid, which supports operating cash flow of $623.7 million.
- Several class action and patent lawsuits are pending, including FCRA claims against Intellicorp Records and a patent suit by Eagle View and Pictometry; the company cannot currently estimate potential liability.
- The company is exploring strategic alternatives for its Healthcare business, as disclosed in the subsequent events note, with no assurance of a transaction.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 24, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $1.76B$1.43B | +23.0% |
| R&D Expenses | $20.60M$25.60M | −19.5% |
| SG&A Expenses | $278.30M$187.30M | +48.6% |
| Operating Expenses | $1.06B$798.80M | +32.4% |
| Operating Income | $703.40M$632.30M | +11.2% |
| Interest Expense | $121.40M$70.00M | +73.4% |
| Net Income | $507.60M$400.00M | +26.9% |
| EPS (Basic) | $3.07$2.41 | +27.4% |
| EPS (Diluted) | $3.01$2.37 | +27.0% |
| Shares Outstanding (Basic) | 165.09M165.82M | −0.4% |
| Shares Outstanding (Diluted) | 168.45M169.13M | −0.4% |
05—Questions
Frequently Asked Questions
How did the Wood Mackenzie acquisition change Verisk's financial profile?
Verisk acquired Wood Mackenzie on May 19, 2015 for a net cash purchase price of $2,889.6 million, funded through senior notes, a new credit facility, an equity offering and cash on hand. The acquisition added $219.6 million of revenue in 2015 and increased interest expense to $121.3 million from $70.0 million. Total assets rose to $5,615.9 million from $2,345.3 million, and goodwill to $3,134.8 million.
How much debt does Verisk carry, and how has leverage changed?
Total debt was $3,168.0 million at December 31, 2015, compared with $1,436.9 million at December 31, 2014. The filing states that the leverage ratio (debt to EBITDA) increased from 1.57x at March 31, 2015 to 2.89x. The company was in compliance with its financial covenants, which require a consolidated interest coverage ratio of at least 3.0 to 1.0.
What are the main legal risks disclosed in the filing?
The filing describes several pending matters, including a nationwide Fair Credit Reporting Act class action against subsidiary Intellicorp Records, a patent infringement suit by Eagle View Technologies and Pictometry against Xactware, antitrust and racketeering claims in the Snyder v. ACORD case involving ISO, and a February 2016 putative class action in Connecticut over defective concrete foundations. The company states it cannot determine the outcome or estimate potential liability for these matters.
Does Verisk pay dividends, and how is it returning capital to shareholders?
Verisk has not paid or declared cash dividends in the two most recent fiscal years and does not intend to pay them. Its board authorized a share repurchase program of up to $2.3 billion, with $469.4 million remaining as of December 31, 2015. The company repurchased $20.5 million of stock in 2015, compared with $778.5 million in 2014.
What is the company's revenue model and how predictable is it?
Verisk offers solutions primarily through annual subscriptions or long-term agreements, which are typically pre-paid and represented approximately 75% of 2015 revenues. Transactional solutions accounted for 25.3% of 2015 revenues. The filing notes that subscription payments are generally received in advance, so cash flow from operations tends to be higher in the first quarter.
06—Continue