Verisk Analytics, Inc., Reports Third-Quarter 2015 Financial Results

• Total revenue grew 22.7%; organic revenue growth was 5.6%, excluding recent acquisitions and pass-through healthcare revenue.
• Income from continuing operations grew 33.1% to $131.8 million; Adjusted EBITDA from continuing operations grew 31.9% to $278.8 million.
• Diluted GAAP earnings per share (diluted GAAP EPS) grew 32.8% to $0.77; diluted adjusted EPS increased 32.8% to $0.85.
• Net cash provided by operating activities less capital expenditures was $414.3 million, an increase of 50.3% year to date and 46.8% excluding recent acquisitions.

JERSEY CITY, N.J., October 27, 2015 - Verisk Analytics, Inc. VRSK, a leading data analytics provider, today announced results for the fiscal quarter ended September 30, 2015.

Scott Stephenson, president and chief executive officer, said, "Our third-quarter results were solid, with mid-single-digit organic revenue growth adjusted for pass-through healthcare revenue and faster Adjusted EBITDA growth as margins expanded. WoodMac saw good subscription growth, highlighting the team's strong ability to execute in a challenging environment for our customers. We are positioned to execute on our strategies to drive profitable growth and create value for our shareholders over the long term."

Table 1: Summary of Results
(in millions, except per share amounts)
Note: Continuing operations reflect the 2014 sale of the mortgage services business. Adjusted net income and adjusted EPS exclude second-quarter nonrecurring items related to the Wood Mackenzie acquisition.

Revenue
Total revenue increased 22.7% in third-quarter 2015 compared with third-quarter 2014. Organic revenue growth was 7.3%, excluding the healthcare analytics business and recent acquisitions in both periods. Insurance solutions led the organic revenue growth in the quarter.

Decision Analytics segment revenue grew 31.8% in the third quarter of 2015 and represented approximately 68.8% of total revenue. Decision Analytics organic revenue growth was 8.1%, excluding the healthcare analytics business and recent acquisitions.

• Insurance category revenue increased 8.6%, led by strong growth in loss quantification solutions, insurance fraud revenue, and catastrophe modeling services in the quarter. 
• Financial services category revenue increased 7.3% in the quarter, driven by continued underlying demand for our core solutions and services.
• Healthcare revenue, net of pass-through revenue in the current and prior-year quarters, declined 2.0%.
• Energy and specialized markets category organic revenue grew 5.6%. Including the recently acquired Wood Mackenzie and Maplecroft businesses, growth was 431.2%. Wood Mackenzie revenue growth in pounds for the nine months ended September 30 was approximately 7%.

Table 2: Decision Analytics Revenues by Category
(in millions)

Risk Assessment segment revenue grew 6.4% in the quarter.

• Revenue growth in industry-standard insurance programs was 6.7%, resulting primarily from the annual effect of growth in 2015 invoices effective from January 1 and growth from new solutions.
• Property-specific rating and underwriting information revenue grew 5.2% in the third quarter. Growth was led by new sales.

Table 3: Risk Assessment Revenues by Category
(in millions)

Expenses and Adjusted EBITDA
Cost of revenues increased 16.2% compared with third-quarter 2014. The year-over-year increase is primarily due to contributions from acquisitions as well as salaries, benefits, and rent to support business growth.

Selling, general, and administrative expense, or SG&A, increased 41.2% in the quarter, which is primarily due to acquisitions.

Income from continuing operations increased 33.1% to $131.8 million. Adjusted EBITDA increased 31.9%. Excluding acquisitions and a $15.6 million gain on sale of third-party warrants, Adjusted EBITDA increased 7.2% in the quarter.

• The 49.0% increase in Decision Analytics Adjusted EBITDA to $176.6 million was the result of acquisitions, growth in the business, and improved operations. Decision Analytics Adjusted EBITDA in the quarter, excluding recent acquisitions and the gain on sale of warrants, grew 4.9%.
• The third-quarter 2015 Adjusted EBITDA in Risk Assessment increased 10.1% to $102.2 million as a result of revenue growth and good expense management, including the impact of lower costs resulting from the fourth-quarter 2014 talent realignment.

Table 4: Segment Results Summary
(in millions)
Note: Continuing operations reflect the 2014 sale of the mortgage services business. Excludes second-quarter nonrecurring items related to the Wood Mackenzie acquisition.

 

 

Adjusted EPS
GAAP diluted net income per share was $0.77. Diluted adjusted earnings per share (adjusted EPS) were $0.85 for third-quarter 2015, an increase of 32.8% compared with the same period in 2014. Adjusted EPS increased because of solid operations, both organic and acquired. The increases were partially offset by higher fixed asset depreciation and amortization expense and higher interest costs related to new debt issuance.

Free Cash Flow
Free cash flow, defined as cash provided by operating activities less capital expenditures, increased 50.3% to $414.3 million for the nine-month period ended September 30, 2015, including the contribution from acquisitions. This represented 56.5% of Adjusted EBITDA from continuing operations. Capital expenditures increased 2.7% to $105.7 million in the nine months ended September 30, 2015. Capital expenditures were 7.0% of revenue for the nine months ended September 30, 2015.

As part of its commitment to delevering, the company repaid $120 million of debt in the quarter.

Conference Call
Verisk's management team will host a live audio webcast on Wednesday, October 28, 2015, at 8:30 a.m. EDT (5:30 a.m. PDT, 12:30 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 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 404-537-3406 for international participants using Conference ID #56055540.

About Verisk Analytics

Verisk Analytics VRSK is a leading data analytics provider serving customers in insurance, energy, healthcare, financial services, government, and risk management. Using advanced technologies to collect and analyze billions of records, Verisk Analytics draws on vast industry expertise and unique proprietary data sets to provide predictive analytics and decision support solutions in fraud prevention, actuarial science, insurance coverages, fire protection, catastrophe and weather risk, data management, and many other fields. In the United States and around the world, Verisk Analytics helps customers protect people, property, and financial assets. For more information, please visit www.verisk.com.

Contact:
Investor Relations
Eva Huston
Senior Vice President, Treasurer, and Chief Knowledge Officer
Verisk Analytics, Inc.
201-469-2142
eva.huston@verisk.com

David Cohen
Director, Investor Relations and Business Analytics
Verisk Analytics, Inc.
201-469-2174
david.e.cohen@verisk.com

Media
Rich Tauberman
MWW Group (for Verisk Analytics)
202-600-4546
rtauberman@mww.com

Forward-Looking Statements
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. 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 Adjusted EBITDA, Adjusted EBITDA margin, adjusted net income from continuing operations, adjusted EPS, and free cash flow, 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.

Adjusted 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 "Adjusted EBITDA" as net income from continuing operations before interest expense, income taxes, and depreciation and amortization of fixed and intangible assets and excluding second quarter nonrecurring items related to the Wood Mackenzie acquisition.

Although securities analysts, lenders, and others frequently use EBITDA in their evaluation of companies, EBITDA has 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 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:

• Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments.
• Adjusted EBITDA does 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, and Adjusted EBITDA does not reflect any cash requirements for such replacements.
• Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting the usefulness of their calculations as comparative measures.

Table 5: Adjusted EBITDA Reconciliation
(in millions)

Note: Nonrecurring items related to the Wood Mackenzie acquisition include gain on foreign exchange hedges, professional services fees, financing and investment banking fees, and retention costs.

Table 6: Adjusted Net Income from Continuing Operations Reconciliation
(in millions, except per share amounts)
Note: Continuing operations reflect the 2014 sale of the mortgage services business.

Note: Nonrecurring items related to the Wood Mackenzie acquisition include gain on foreign exchange hedges, professional services fees, financing and investment banking fees, and retention costs.

Table 7: Free Cash Flow Reconciliation
(in millions)

	Nine Months Ended
	September 30,
	2015				2014				Change
Operating cash flow	$	520.0			$	378.6			37.3	%
less: Capital expenditures		(105.7	)			(103.0	)		2.7	%
Free cash flow	$	414.3			$	275.6			50.3	%

Attached Financial Statements
Please refer to the full Form 10-Q filing for the complete financial statements and related notes.

VERISK ANALYTICS, INC.
CONSOLIDATED BALANCE SHEETS
As of September 30, 2015 (Unaudited) and December 31, 2014

VERISK ANALYTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three and Nine Months Ended September 30, 2015 and 2014

	Three Months Ended September 30,								Nine Months Ended September 30,
	2015				2014				2015				2014
	(In thousands, except for share and per share data)
Revenues	$	550,401			$	448,665			$	1,507,448			$	1,281,862
Expenses:
Cost of revenues (exclusive of items shown separately below)		210,167				180,873				589,579				523,016
Selling, general and administrative		79,310				56,164				228,908				170,372
Depreciation and amortization of fixed assets		33,501				21,951				86,571				62,455
Amortization of intangible assets		18,543				14,187				61,496				42,620
Total expenses		341,521				273,175				966,554				798,463
Operating income		208,880				175,490				540,894				483,399
Other income (expense):
Investment income and others, net		17,912				(285	)			17,153				(76	)
Gain on derivative instruments		-				-				85,187				-
Interest expense		(33,003	)			(17,498	)			(88,927	)			(52,396	)
Total other (expense) income, net		(15,091	)			(17,783	)			13,413				(52,472	)
Income before income taxes		193,789				157,707				554,307				430,927
Provision for income taxes		(61,975	)			(58,692	)			(160,487	)			(159,372	)
Income from continuing operations		131,814				99,015				393,820				271,555
Income from discontinued operations, net of tax of $0 and $23,365, for the three and nine months ended September 30, 2014, respectively		-				-				-				31,117
Net income	$	131,814			$	99,015			$	393,820			$	302,672
Basic net income per share:
Income from continuing operations	$	0.78			$	0.60			$	2.41			$	1.63
Income from discontinued operations		-				-				-				0.19
Basic net income per share	$	0.78			$	0.60			$	2.41			$	1.82
Diluted net income per share:
Income from continuing operations	$	0.77			$	0.58			$	2.36			$	1.60
Income from discontinued operations		-				-				-				0.18
Diluted net income per share	$	0.77			$	0.58			$	2.36			$	1.78
Weighted average shares outstanding:
Basic		168,739,437				166,187,540				163,656,387				166,504,384
Diluted		172,171,337				169,522,448				167,079,550				169,815,867

VERISK ANALYTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended September 30, 2015 and 2014

---