01—Abstract
Summary
Summary of the 10-K filed February 18, 2020. Cited figures are marked; the original filing is the authoritative source.
Verisk Analytics, Inc. (VRSK) reported 2019 revenues of $2,607.1 milliona, up from $2,395.1 million in 2018, an increase of $212.0 million or 8.9%.
Net income declined to $449.9 millionb from $598.7 million, reflecting a $125.0 million litigation reserve tied to the Xactware Solutions patent litigation, higher acquisition-related earn-out costs ($71.1 million increase in SG&A), and a higher effective tax rate of 20.9% versus 16.8%. Diluted EPS was $2.70 versus $3.56. EBITDA was $1,018.9 million versus $1,145.5 million, with EBITDA margin of 39.1% versus 47.8%.
The company operates three segments: Insurance (71% of revenues), Energy and Specialized Markets (22%), and Financial Services (7%). Insurance revenues rose 8.8% to $1,855.5 millionc, Energy and Specialized Markets rose 11.7% to $573.6 million, and Financial Services rose 1.2% to $178.0 million. Roughly 81% of 2019 revenues came from annual subscriptions or long-term agreements, typically prepaid.
Net cash provided by operating activities was $956.3 milliond, while capital expenditures were $216.8 million and acquisitions totaled $703.7 million. Total debt rose to $3,151.0 million from $2,723.3 million.
The filing also highlights ongoing legal exposure: the $125.0 million Eagle View patent verdict is under appeal, with a permanent injunction on certain Geomni and Xactimate products, and a 360Value antitrust class action remains pending. Management also announced a $500.0 million additional share repurchase authorization and a quarterly dividend of $0.27 per share, both approved February 12, 2020.
02—Key points
Key Highlights
- Revenues of $2,607.1 million, up 8.9% from $2,395.1 million in 2018, with the Insurance segment contributing about 71% of revenues
- Net income fell to $449.9 million from $598.7 million, driven by a $125.0 million litigation reserve, $71.1 million higher acquisition-related earn-out costs in SG&A, and a higher effective tax rate of 20.9%
- EBITDA of $1,018.9 million versus $1,145.5 million in 2018; EBITDA margin declined to 39.1% from 47.8%
- About 81% of 2019 revenues came from annual subscriptions or long-term agreements, typically prepaid, supporting predictable cash flow
- Operating cash flow of $956.3 million, with capital expenditures of $216.8 million and acquisitions of $703.7 million, including Genscape and FAST
- Total debt increased to $3,151.0 million from $2,723.3 million, and the Board approved a $500.0 million additional share repurchase authorization and a $0.27 quarterly dividend in February 2020
- Eagle View patent litigation resulted in a $125.0 million jury damages award for willful infringement, with a permanent injunction on certain products; the company plans to appeal
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Verisk Analytics kept $0.17.
- Revenue$2.61B100.0%
- Cost of revenue−$976.8M37.5%
- Gross profit$1.63B62.5%
- Operating costs−$933.4M35.8%
- Operating income$696.9M26.7%
- Interest, other & tax−$247.0M9.5%
- Net income$449.9M17.3%
Where FY2019 revenue went
$2.61B- Cost of revenue: $976.8M, 37% of revenue
- SG&A: $603.5M, 23% of revenue
- Net income: $449.9M, 17% of revenue
- R&D: $60.0M, 2.3% of revenue
- Other operating costs: $269.9M, 10% of revenue
- Interest, other & tax: $247.0M, 9.5% of revenue
Kept 17% as net incomeR&D $60.0M · 2.3%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 18, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $2.61B$2.40B | +8.9% |
| Cost of Revenue | $976.80M$886.20M | +10.2% |
| Gross Profit | $1.63B$1.51B | +8.0% |
| R&D Expenses | $60.00M$45.10M | +33.0% |
| SG&A Expenses | $603.50M$378.70M | +59.4% |
| Operating Expenses | $1.91B$1.56B | +22.4% |
| Operating Income | $696.90M$834.10M | −16.4% |
| Interest Expense | $126.80M$129.70M | −2.2% |
| Net Income | $449.90M$598.70M | −24.9% |
| EPS (Basic) | $2.75$3.63 | −24.2% |
| EPS (Diluted) | $2.70$3.56 | −24.2% |
| Shares Outstanding (Basic) | 163.54M164.81M | −0.8% |
| Shares Outstanding (Diluted) | 166.56M168.30M | −1.0% |
05—Questions
Frequently Asked Questions
Why did net income decline in 2019 despite revenue growth?
Net income fell to $449.9 million from $598.7 million mainly because of a $125.0 million litigation reserve for the Xactware Solutions patent litigation, a $71.1 million increase in acquisition-related earn-out costs within SG&A, and a higher effective tax rate of 20.9% compared with 16.8% in 2018.
Which segment drove revenue growth in 2019?
Insurance revenues rose $149.6 million, or 8.8%, to $1,855.5 million, with underwriting & rating up 8.7% and claims up 8.8%. Energy and Specialized Markets grew 11.7% to $573.6 million, partly due to the Genscape and CaaS acquisitions, while Financial Services grew 1.2% to $178.0 million.
What legal risks does the filing disclose?
The Eagle View patent case produced a $125.0 million damages verdict for willful infringement and a permanent injunction against sales of Geomni Roof, Geomni Property and Aerial Sketch in combination with Xactimate; the company plans to appeal and the plaintiff has petitioned for up to treble damages. The 360Value antitrust class action, alleging conspiracy to under-insure homes, remains pending, and the company says it cannot currently estimate the liability.
How does Verisk generate and collect revenue?
Verisk primarily sells annual subscriptions or long-term agreements, which are typically prepaid and represented over 81% of 2019 revenues. Deferred revenues rose to $440.1 million, and the company reports a working capital deficit because prepayments are recorded as current liabilities, which the filing says allows revenue growth to be a source of cash.
What capital returns did Verisk make in 2019?
Verisk repurchased $300.0 million of common stock and paid dividends of $163.5 million in 2019. The Board declared four quarterly dividends of $0.25 per share during the year and approved a $0.27 dividend for 2020, along with a $500.0 million additional repurchase authorization, of which $127.6 million remained available at December 31, 2019 before the new authorization.
06—Continue