Verisk Analytics, Inc
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SPEED + FOCUS 2017 ANNUAL REPORT COMPANY PROFILE Verisk Analytics (Nasdaq:VRSK) is a leading data analytics pro- Using advanced technologies to collect and analyze billions of vider serving customers in insurance, energy and specialized records, Verisk draws on unique data assets and deep domain markets, and financial services. Headquartered in Jersey City, expertise to provide first-to-market innovations integrated into New Jersey, the company operates in 30 countries and is a customer workflows. The company offers predictive analytics member of Standard & Poor’s S&P 500® Index. Verisk is also and decision support solutions to customers in rating, under- part of the Nasdaq-100 Index—which includes the 100 largest writing, claims, catastrophe and weather risk, global risk ana- nonfinancial securities listed on the Nasdaq stock market— lytics, natural resources intelligence, economic forecasting, with its common stock trading on Nasdaq under the symbol and many other fields. To meet the needs of diverse clients, VRSK. In 2017, Forbes named Verisk to its World’s Most Verisk employs an experienced staff of business and technical Innovative Companies list and its America’s Best Mid-Size specialists, analysts, and certified professionals. Employers list—one of only seven companies to appear on both lists. Verisk also earned the Great Place to Workk® Around the world, Verisk helps customers protect people, Certification for our outstanding workplace culture. property, and financial assets. For more information, please visit www.verisk.com. FINANCIAL HIGHLIGHTS Revenues Adjusted EBITDA $ Millions $ Millions 2017 2,145 2017 1,048 2016 1,995 2016 1,005 2015 1,761 2015 914 2014 1,431 2014 728 2013 1,324 2013 665 CAGR=12.8% CAGR=12.0% 2017 Revenue Types 2017 Revenues by Vertical End Market Transactional: 19% Insurance: 36% nalyti on A cs isi ec D t n 64% e m s Financial Services: 7% s Subscriptions e s and Long-Term s A Contracts: 81% k s i 36% R Energy and Specialized Markets: 21% SELECTED FINANCIAL DATA Years Ended December 31, 2017 2016 2015 (in millions, except for per share data) Statement of operations Revenues: Decision Analytics revenues $ 1,374.9 $ 1,270.9 $ 1,072.5 Risk Assessment revenues 770.3 724.3 688.2 Revenues $ 2,145.2 $ 1,995.2 $ 1,760.7 Total expenses $ 1,344.0 $ 1,227.6 $ 1,057.3 Operating income $ 801.2 $ 767.6 $ 703.4 Income from continuing operations, net of tax $ 555.1 $ 451.5 $ 487.5 Income from discontinued operations, net of tax $ — $ 139.7 $ 20.1 Net income $ 555.1 $ 591.2 $ 507.6 Adjusted net income from continuing operations $ 630.4 $ 531.5 $ 482.8 Adjusted earnings per share from continuing operations: Basic $ 3.82 $ 3.16 $ 2.92 Diluted $ 3.74 $ 3.11 $ 2.87 Adjusted EBITDA from continuing operations: Decision Analytics $ 589.1 $ 580.0 $ 507.4 Risk Assessment 458.7 424.7 406.5 Total adjusted EBITDA from continuing operations $ 1,047.8 $ 1,004.7 913.9 Adjusted EBITDA margin from continuing operations 48.8% 50.4% 51.9% Balance sheet data Cash and cash equivalents $ 142.3 $ 135.1 $ 138.3 Total assets $ 6,020.3 $ 4,631.2 $ 5,593.7 Total debt $ 3,008.8 $ 2,387.0 $ 3,145.7 Stockholders’ equity $ 1,925.4 $ 1,332.4 $ 1,372.0 Other data Consolidated cash from operations $ 743.5 $ 577.5 $ 663.8 Consolidated capital expenditures $ 183.5 $ 156.5 $ 166.1 The company defines “adjusted EBITDA” as net income from continuing operations before interest expense, provision for income taxes, and depreciation and amortization expense. In 2016, adjusted EBITDA excludes nonrecurring severance charges, gain on sale of equity investments, and a nonrecurring ESOP payment, and in 2015, nonrecurring items related to the Wood Mackenzie acquisition. The company defines “adjusted net income” as income from continuing operations before amortization of intangibles. In 2016, adjusted net income excludes a nonrecurring ESOP payment, net of tax, and in 2015, nonrecurring items related to the Wood Mackenzie acquisition, net of tax. The company calculates “diluted adjusted earnings per share” as adjusted net income divided by diluted shares. Adjusted net income, adjusted EBITDA, and adjusted EBITDA margin are non-GAAP financial measures. See inside back cover for the reconciliations to net income. The company defines “capital expenditures” as purchases of fixed assets. Speed and Focus | 1 TO OUR SHAREHOLDERS, CUSTOMERS, AND EMPLOYEES At Verisk Analytics, our vision to be the world’s most effective and responsible data analytics company in pursuit of our customers’ most strategic opportunities informs everything we do. In 2017, we again demonstrated our commitment to innova- tion, customer value, financial performance, and shareholder returns. For the third consecutive year, Forbes ranked Verisk one of the most innovative companies in the world. The magazine also cited us as one of America’s best employers, an achievement complemented by our certification from Great Place to Work® for the second consecutive year. We achieved the highest Net Promoter Score in our history— a measure of our customers’ loyalty—reflecting that we serve our customers with quality, service, and innovation. Continuing to enhance the customer experience will help us generate strong revenue growth and profitability now and in the future. We welcomed chief financial officer Lee Shavel to the cor- porate management team. Lee’s broad financial and opera- tional experience and success as a public company CFO and banker are a strong addition to our finance team.This year, we approached our customers, our markets, and our investment in innovations with Speed and Focus. As you read this year’s Annual Report, you’ll learn about the many examples of how we achieved Speed and Focus in 2017. 2017 Review Overall, 2017 was a year of good performance, as we again achieved peer-leading levels of profitability and organic revenue growth. We maintained our disciplined capital management strategy and invested in growing our business organically and through acquisitions while also returning capital to shareholders. Our 2017 revenues increased 7.5 percent over 2016, to $2.1 billion. In our Decision Analytics business segment, revenues grew 8.2 percent, to $1.4 billion; in our Risk Assessment segment, revenues grew 6.4 percent, to $770.3 million. From 2013 to 2017, revenues increased at a compound annual growth rate (CAGR) of 12.8 percent. Decision Analytics revenues increased at a CAGR of 18.1 percent, and Risk Assessment revenues increased at a CAGR of 5.7 percent. 2 | Verisk Analytics 2017 Annual Report The company recorded $555.1 million of net income, up risk, banks and creditors, and the energy supply chain. We 22.9 percent from 2016, and $630.4 million of adjusted net also acquired several smaller companies, including Arium, income, up 18.6 percent from 2016. Net income margin was Fintellix, Healix Risk Rating, and MAKE, with solutions in 25.9 percent. The company achieved $1.0 billion of adjusted areas such as liability risk modeling, regulatory reporting, EBITDA, up 4.3 percent from 2016. Adjusted EBITDA margin medical risk assessment, and wind power. You’ll learn more was 48.8 percent. Diluted GAAP earnings per share increased about these and other acquisitions throughout this report. 24.6 percent, to $3.29. Diluted adjusted earnings per share increased 20.3 percent, to $3.74. Long-Term Value Creation Verisk continued to diversify our revenue streams in 2017. Approximately 48.9 percent of revenues came from primary Our strategy for long-term value creation guides all our insurers in the property/casualty insurance industry; and actions. In a global environment of growing demand, we 51.1 percent came from other markets, including energy, produce solutions that combine data, analytic methods for financial services, and other specialized markets. The finding meaning in the data, and software for delivering data 2016–2017 period marks the first time that revenues from our and analysis to customers’ workflows. Customers use our newer markets have exceeded those of our traditional market. solutions to make better decisions about risk, investments, and operations with greater precision, efficiency, and disci- We continue to pursue a program of strategic open-market pline. And we help customers across the globe protect and share repurchases. In 2017, we repurchased approximately increase the value of people, property, and financial assets. 3.4 million shares for a total cost of $270 million at a weighted We create shareholder value by pursuing opportunities average price of $80.39, bringing the total to $1.7 billion to grow our operating cash flow and generating attractive deployed over the past six years. returns on capital through thoughtful investment and execu- tion against our operating priorities. In 2017, we provided new and enhanced insurance programs to address risk exposures and continued to grow unique data Business Model sets and integrate them into customer workflows. We released Much of what we do frequently demonstrates two qualities: industry-leading catastrophe models and claims management • Our solutions often become the standard for all participants tools and made significant strides in growing our remote in a vertical market to perform their data and analytic work. sensing capabilities and geospatial data. In the energy sector, • Most of our solutions are “ready to use” and don’t require we grew our chemicals, power, and renewables areas. In finan- significant servicing or installation support. cial services, we expanded solutions for consumer spending analytics and merchant and consumer fraud. As a result, our business is often characterized by high incre- mental and total margins and relatively low capital intensity. We advanced our commitment to sustainability on several Moreover, we enjoy strong relationships with most, if not all, fronts.