VERISK ANALYTICS, INC. The following discussion should be read in conjunction with our historical
financial statements and the related notes included in our annual report on Form
10-K ("2021 10-K") dated and filed with the
We are a leading data analytics provider serving customers in insurance
and energy. Using advanced technologies to collect and analyze billions of
records, we draw on unique data assets and deep domain expertise to provide
innovations that may be integrated into customer workflows. We offer 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. In
Our customers use our solutions to make better decisions about risk and opportunities with greater efficiency and discipline. We refer to these products and services as "solutions" due to the integration among our services and the flexibility that enables our customers to purchase components or the comprehensive package. These solutions take various forms, including data, statistical models, or tailored analytics, all designed to allow our customers to make more logical decisions. We believe our solutions for analyzing risk positively impact our customers' revenues and help them better manage their costs.
We organize our business in three segments: Insurance, Energy and Specialized
Markets, and Financial Services. On
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Table of Contents Executive Summary Key Performance Metrics
We believe our business's ability to grow recurring revenue and generate positive cash flow is the key indicator of the successful execution of our business strategy. We use year-over-year revenue and EBITDA growth as metrics to measure our performance. EBITDA and EBITDA margin are non-GAAP financial measures (See footnote 2 within the Condensed Consolidated Results of Operations section of Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations). The nearest equivalent respective GAAP financial measures are net income and net income margin.
Revenue growth. We use year-over-year revenue growth as a key performance metric. We assess revenue growth based on our ability to generate increased revenue through increased sales to existing customers, sales to new customers, sales of new or expanded solutions to existing and new customers, and strategic acquisitions of new businesses.
EBITDA growth. We use EBITDA growth as a measure of our ability to balance the size of revenue growth with cost management and investing for future growth. EBITDA growth allows for greater transparency regarding our operating performance and facilitate period-to-period comparison.
EBITDA margin. We use EBITDA margin as a metric to assess segment performance and scalability of our business. We assess EBITDA margin based on our ability to increase revenues while controlling expense growth. We calculate EBITDA margin as EBITDA divided by revenues.
Revenues
We earn revenues through agreements for hosted subscriptions, advisory/consulting services, and for transactional solutions, recurring and non-recurring. Subscriptions for our solutions are generally paid in advance of rendering services either quarterly or in full upon commencement of the subscription period, which is usually for one year and automatically renewed each year. As a result, the timing of our cash flows generally precedes our recognition of revenues and income and our cash flow from operations tends to be higher in the first quarter as we receive subscription payments. Examples of these arrangements include subscriptions that allow our customers to access our standardized coverage language, our claims fraud database, or our actuarial services throughout the subscription period. In general, we experience minimal revenue seasonality within the business.
Approximately 81% of the revenues in our Insurance segment for the six months
ended
We also provide advisory/consulting services, which help our customers get more
value out of our analytics and their subscriptions. In addition, certain of our
solutions are paid for by our customers on a transactional basis, recurring and
non-recurring. For example, we have solutions that allow our customers to access
property-specific rating and underwriting information to price a policy on a
commercial building, or compare a P&C insurance or a workers' compensation claim
with information in our databases, or use our repair cost estimation solutions
on a case-by-case basis. For the six months ended
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Table of Contents Operating Costs and Expenses
Personnel expenses are the major component of both our cost of revenues and
selling, general and administrative expenses. Personnel expenses, which
represented approximately 59% and 58% of our total operating expenses (excluding
the net gain on the sale of our environmental health and safety business and our
Financial Services segment) for the six months ended
We assign personnel expenses between two categories, cost of revenues and selling, general and administrative expense, based on the actual costs associated with each employee. We categorize employees who maintain our solutions as cost of revenues, and all other personnel, including executive managers, salespeople, marketing, business development, finance, legal, human resources, and administrative services, as selling, general and administrative expenses. A significant portion of our other operating costs, such as facilities and communications, is also either captured within cost of revenues or selling, general and administrative expenses based on the nature of the work being performed.
While we expect to grow our headcount over time to take advantage of our market opportunities, we believe that the economies of scale in our operating model will allow us to grow our personnel expenses at a lower rate than revenues. Historically, our EBITDA margin has improved because we have been able to increase revenues without a proportionate corresponding increase in expenses. However, part of our corporate strategy is to invest in new solutions and new businesses, which may offset margin expansion.
Cost of Revenues. Our cost of revenues consists primarily of personnel expenses. Cost of revenues also includes the expenses associated with the acquisition, disposition and verification of data, the maintenance of our existing solutions, and the development and enhancement of our next-generation solutions. Our cost of revenues excludes depreciation and amortization.
Selling, General and Administrative Expenses. Our selling, general and administrative expenses consist primarily of personnel costs. A portion of the other costs such as facilities, insurance, and communications are also allocated to selling, general and administrative expenses based on the nature of the work being performed by the employee. Our selling, general and administrative expenses exclude depreciation and amortization.
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