01—Abstract
Summary
Summary of the 10-K filed February 23, 2021. Cited figures are marked; the original filing is the authoritative source.
Verisk Analytics, Inc. reported revenues of $2,784.6 milliona and net income of $712.7 million for the year ended December 31, 2020, up from $2,607.1 million in revenues and $449.9 million in net income in 2019.
Revenues grew 6.8% for the year, or 3.4% excluding recent acquisitions, businesses held for sale and dispositions. Operating income rose to $1,038.1 millionb from $696.9 million, and EBITDA reached $1,393.8 million, with an EBITDA margin of 50.1% versus 39.1% in 2019. The prior-year results included a $125.0 million litigation reserve for the Xactware patent case, and management attributes the margin improvement mainly to the absence of that reserve, lower acquisition-related earn-out costs, gains on dispositions, reduced travel expenses during COVID-19 and cost discipline.
The Insurance segment generated $1,986.3 millionc of revenue (approximately 71% of the total), with underwriting & rating up 10.9% and claims down 2.5%. Energy and Specialized Markets revenue rose 13.8% to $641.6 million, largely due to recent acquisitions, while Financial Services declined 12.0% to $156.7 million. Operating cash flow was $1,068.2 million, and capital expenditures were $246.8 million.
Total debt was $3,213.9 milliond at year-end, and the company returned capital through $348.8 million of share repurchases and $175.8 million of dividends paid. The filing discloses material legal exposure. In the Xactware patent litigation, the court on February 16, 2021 trebled a $125.0 million jury award to $375.0 million plus interest and partial attorneys' fees.
The company has recorded a $125.0 million reserve and its appeal to the Federal Circuit remains pending, so the ultimate outcome is not determinable. Several other class actions were also disclosed, for which the company states it cannot reasonably estimate liability.
02—Key points
Key Highlights
- Revenues of $2,784.6 million, up 6.8% from $2,607.1 million; 3.4% growth excluding recent acquisitions, businesses held for sale and dispositions.
- Net income of $712.7 million versus $449.9 million in 2019; diluted EPS of $4.31 versus $2.70.
- EBITDA of $1,393.8 million with a 50.1% consolidated EBITDA margin, up from 39.1% in 2019.
- Insurance segment revenue of $1,986.3 million (about 71% of total); Energy and Specialized Markets up 13.8% to $641.6 million; Financial Services down 12.0% to $156.7 million.
- Operating cash flow of $1,068.2 million, up 11.7%, against capital expenditures of $246.8 million.
- Xactware patent litigation: court awarded enhanced damages bringing the total to $375.0 million plus interest; $125.0 million reserve recorded and appeal pending.
- Share repurchases of $348.8 million and dividends paid of $175.8 million in 2020; $300.0 million additional repurchase authorization approved February 16, 2021.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2020, Verisk Analytics kept $0.31.
- Revenue$2.27B100.0%
- Cost of revenue−$791.7M34.9%
- Gross profit$1.48B65.1%
- Operating costs−$521.4M23.0%
- Operating income$956.3M42.1%
- Interest, other & tax−$243.6M10.7%
- Net income$712.7M31.4%
Where FY2020 revenue went
$2.27B- Cost of revenue: $791.7M, 35% of revenue
- Net income: $712.7M, 31% of revenue
- SG&A: $308.2M, 14% of revenue
- R&D: $44.6M, 2.0% of revenue
- Other operating costs: $168.6M, 7.4% of revenue
- Interest, other & tax: $243.6M, 11% of revenue
Kept 31% as net incomeR&D $44.6M · 2.0%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 23, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $2.27B$2.61B | −13.0% |
| Cost of Revenue | $791.70M$976.80M | −18.9% |
| Gross Profit | $1.48B$1.63B | −9.4% |
| R&D Expenses | $44.60M$60.00M | −25.7% |
| SG&A Expenses | $308.20M$603.50M | −48.9% |
| Operating Expenses | $1.31B$1.91B | −31.3% |
| Operating Income | $956.30M$696.90M | +37.2% |
| Interest Expense | $138.30M$126.80M | +9.1% |
| Net Income | $712.70M$449.90M | +58.4% |
| EPS (Basic) | $4.38$2.75 | +59.3% |
| EPS (Diluted) | $4.31$2.70 | +59.6% |
| Shares Outstanding (Basic) | 162.61M163.54M | −0.6% |
| Shares Outstanding (Diluted) | 165.32M166.56M | −0.7% |
05—Questions
Frequently Asked Questions
What drove the increase in profitability in 2020?
Management attributes the higher net income and EBITDA margin mainly to the absence of the $125.0 million Xactware litigation reserve recorded in 2019, a decrease in acquisition-related earn-out costs, gains on the sales of the compliance background screening and data warehouse businesses, lower travel expenses during COVID-19 and cost discipline.
How significant is the Xactware patent litigation risk?
On February 16, 2021, the court trebled the jury's $125.0 million award to $375.0 million and awarded pre- and post-judgment interest. The company has a $125.0 million reserve, and if its appeal to the Federal Circuit is unsuccessful it could incur additional expenses up to the amount by which the enhanced damages, interest and attorneys' fees exceed that reserve.
How did COVID-19 affect the business?
The company states it has not identified a material impact on approximately 85% of revenues, which grew about 6%. The remaining 15% of revenues, largely transactional, declined about 11% for 2020, mainly in travel insurance, auto underwriting and claims, energy consulting and financial services. Travel expenses decreased, and the company reports minimal interruption to customer-facing operations.
How is the company funding acquisitions and shareholder returns?
The company funds acquisitions mainly through its debt facilities. In 2020 it issued $500.0 million of 3.625% senior notes due 2050, and total debt was $3,213.9 million at year-end. Available capacity under the $1,000.0 million Credit Facility was $944.6 million, and the company was in compliance with its covenants.
What is the outlook for dividends and buybacks?
On February 17, 2021, the board approved a cash dividend of $0.29 per share payable March 31, 2021, up from $0.27 per quarter in 2020. On February 16, 2021, the board approved an additional $300.0 million share repurchase authorization, and $278.8 million remained available at December 31, 2020.
06—Continue