Diluted EPS decreased 8.0% to $0.80 for the fourth quarter of 2019 due to higher acquisition-related costs (earn-outs) and a higher effective tax rate in the fourth quarter of 2019 versus the prior-year period.
Diluted adjusted EPS grew 8.7% to $1.13 for the fourth quarter of 2019, reflecting organic growth in the business, contributions from acquisitions, and lower average share count. These increases were offset in part by increases in depreciation and amortization expense, interest expense, and a higher effective tax rate.
Cash Flow
Net cash provided by operating activities was $176 million for the fourth quarter of 2019, up 1.7%. Capital expenditures were $64 million for the fourth quarter of 2019, down 16.3%. Free cash flow was $112 million for the fourth quarter of 2019, up 16.0%, primarily due to lower capital expenditures.
Free cash flow represented 35.3% of adjusted EBITDA for the fourth quarter of 2019, compared with 33.5% in the prior-year period.
Business Portfolio Changes
The company has recently engaged in a series of transactions that focus our portfolio of businesses and position Verisk for continued long-term sustainable growth. On February 1, 2020, the company closed on the previously announced sale of its aerial imagery sourcing group to Vexcel Imaging in exchange for a minority interest in Vexcel. This transaction creates a leading geospatial data library to which Verisk will have full access. In addition, the transaction allows Verisk to focus exclusively on aerial data analytic solutions to better service commercial and insurance customers.
On February 5, 2020, the company entered into an agreement to transition its Argus Data Warehouse business to a partner to focus on its core analytics capabilities. This business was in the Financial Services segment.
On February 14, 2020, the company closed on the sale of its compliance background screening business for cash proceeds of $24 million. This business was in the Claims vertical of our Insurance segment.
Dividend
On December 31, 2019, Verisk paid a cash dividend of 25 cents per share of common stock issued and outstanding to the holders of record as of December 13, 2019.
On February 12, 2020, Verisk’s Board of Directors approved an 8% increase in our cash dividend to 27 cents per share of common stock issued and outstanding, payable on March 31, 2020, to holders of record as of March 13, 2020.
Share Repurchases
Including the accelerated share repurchase (ASR) settled in fourth-quarter 2019, the company repurchased approximately 700 thousand shares at an average price of $145.07, for a total cost of $100 million for the fourth quarter of 2019. The company also entered into an additional $50 million ASR agreement; the associated shares will be delivered and settled in February 2020. At December 31, 2019, the company had $128 million remaining under its share repurchase authorization. On February 12, 2020, Verisk’s Board of Directors approved an additional authorization of $500 million.
Conference Call
Verisk’s management team will host a live audio webcast on Wednesday, February 19, 2020, at 8:30 a.m. EST (5:30 a.m. PST, 1:30 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 1-512-961-6560 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 1-404-537-3406 for international participants using conference ID #2274045.
About Verisk
Verisk (Nasdaq:VRSK) is a leading data analytics provider serving customers in insurance, energy and specialized markets, and financial services. Using advanced technologies to collect and analyze billions of records, Verisk draws on unique data assets and deep domain expertise to provide first-to-market innovations that are integrated into customer workflows. Verisk offers predictive analytics and decision support solutions to customers in rating, underwriting, claims, catastrophe and weather risk, global risk analytics, natural resources intelligence, economic forecasting, and many other fields. Around the world, Verisk helps customers protect people, property, and financial assets.
Headquartered in Jersey City, N.J., Verisk operates in 30 countries and is a member of Standard & Poor’s S&P 500® Index. In 2018, Forbes magazine named Verisk to its World’s Best Employers list. For more information, please visit www.verisk.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. This includes, but is not limited to, Verisk’s expectation and ability to pay a cash dividend on its common stock in the future, subject to the determination by the Board of Directors and based on an evaluation of company earnings, financial condition and requirements, business conditions, capital allocation determinations, and other factors, risks, and uncertainties. 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 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, for budgeting and planning purposes, and for evaluating the performance of senior management.
EBITDA, Adjusted EBITDA, and Adjusted EBITDA Expenses: EBITDA represents GAAP net income adjusted for (i) depreciation and amortization of fixed assets; (ii) amortization of intangible assets; (iii) interest expense; and (iv) provision for income taxes. Adjusted EBITDA represents EBITDA adjusted for acquisition-related costs (earn-outs), gain/loss from dispositions (which includes businesses held for sale), nonrecurring gain/loss, and interest income on the subordinated promissory note. Adjusted EBITDA expenses represent adjusted EBITDA net of revenues. The company believes these measures are useful and meaningful because they allow for greater transparency regarding the company’s operating performance and facilitate period-to-period comparison.
Adjusted Net Income and Diluted Adjusted EPS: Adjusted net income represents GAAP net income adjusted for (i) amortization of intangible assets, net of tax; (ii) acquisition-related costs (earn-outs), net of tax; (iii) gain/loss from dispositions (which includes businesses held for sale), net of tax; (iv) nonrecurring gain/loss, net of tax; and (v) interest income on the subordinated promissory note, net of tax. Diluted adjusted EPS represents adjusted net income divided by weighted-average diluted shares. The company believes these measures are useful and meaningful because they allow evaluation of the after-tax profitability of the company’s results excluding the after-tax effect of acquisition-related costs and nonrecurring items.
