Verisk Analytics, Inc. (VRSK)

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Verisk Analytics (VRSK)

Q4 2012 Earnings Call

February 27, 2013 8:30 am ET


Eva F. Huston - Senior Vice President, Head of Corporate Finance, Head of Investor Relations and Treasurer

Frank J. Coyne - Chairman, Chief Executive Officer and Chairman of Executive Committee

Scott G. Stephenson - President and Chief Operating Officer

Mark V. Anquillare - Chief Financial Officer, Principal Accounting Officer and Executive Vice President


David Togut - Evercore Partners Inc., Research Division

Andrew W. Jeffrey - SunTrust Robinson Humphrey, Inc., Research Division

Eric J. Boyer - Wells Fargo Securities, LLC, Research Division

William A. Warmington - Raymond James & Associates, Inc., Research Division

Timothy McHugh - William Blair & Company L.L.C., Research Division

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

Manav Patnaik - Barclays Capital, Research Division

Kelly A. Flynn - Crédit Suisse AG, Research Division

James E. Friedman - Susquehanna Financial Group, LLLP, Research Division



Good day, everyone, and welcome to the Verisk Analytics Fourth Quarter 2012 Earnings Conference Call. This call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Verisk's Senior Vice President, Treasurer, Corporate Finance and Head of Investor Relations, Ms. Eva Huston. Ms. Huston, please go ahead.

Eva F. Huston

Thank you, Steve, and good morning to everyone. We appreciate you joining us today for the discussion of our fourth quarter 2012 financial results. With me on the call this morning are: Frank Coyne, Chairman and Chief Executive Officer; Scott Stephenson, President and Chief Operating Officer; and Mark Anquillare, Chief Financial Officer. Following comments by Frank, Scott and Mark, highlighting some key points about our strategic priorities and financial performance, we will open up the call for your questions.

The earnings release referenced on this call, as well as the 10-K, can be found in the Investors section of our website, verisk.com. The earnings release has also been attached to an 8-K that we have furnished to the SEC. A replay of this call will be available for 30 days until March 28, 2013, on our website and by dial-in.

Finally, as set forth in more detail in today's earnings release, I will remind everyone that today's call may include forward-looking statements about Verisk's future performance. Actual performance could differ materially from what is suggested by our comments today. Information about the factors that could affect future performance is summarized at the end of our press release, as well as contained in our recent SEC filings.

And now I will turn the call over to Frank Coyne.

Frank J. Coyne

Thank you, Eva, and good morning. In fourth quarter 2012, we delivered strong overall performance of over 18% total revenue growth and 26% diluted adjusted EPS growth. For the full year, total revenue growth was 15% and diluted adjusted EPS growth was 20%.

Our consolidated organic revenue growth in the fourth quarter was 6.7%, reflecting strong growth in healthcare and good growth in insurance solutions, offset by weakness in mortgage. Excluding our historical mortgage business, organic revenue growth was 9.4% in both the quarter and for the year. Profitability was strong with an EBITDA margin of over 45% in the quarter and for the year. Free cash flow was also strong, increasing over 25% in 2012, even after our pension funding in the earlier part of the year.

In the fourth quarter, our Risk Assessment revenue grew 5%, after adjusting for the impact of a transfer of some revenue to Decision Analytics in 2012, and also grew 5% for the year, reflecting the value to our long-standing insurance company customers of our industry-standard insurance programs and property-specific data. In Decision Analytics for the quarter, our revenue grew almost 30% and our insurance solutions grew about 10%, even as transactional claims activity related to Sandy and other storms was captured under existing contracted customer minimums.

Our healthcare solutions continued their excellent organic growth, growing revenue about 28% organically in the quarter. Total healthcare revenue growth was almost 90%, including the contributions MediConnect continues to make. In the quarter, we generated over $70 million in revenue from our healthcare business.

In financial services, we continue to be pleased that Argus' performance has been on target and our future expectations remain on track. Within our mortgage tools, we are seeing recent trends continuing. Our origination-related revenue continues to grow ahead of the origination market, while our overall mortgage revenue declined, although slightly less than we expected it to when we talked to you last quarter. We will continue to face challenges in mortgage in 2013 as the forensic business moves back towards normalized level. But overall, our business is now more diverse in both customer and solution set.

We remain disciplined on our use of capital and are focused on delivering shareholder returns. In 2012, we spent about $800 million on acquisitions, primarily MediConnect and Argus. We find the results of our acquisitions encouraging and believe our shareholders should be pleased by this use of capital, as evidenced by strong initial results and strategic fits.

Our share repurchases remained moderated in the quarter at $35 million as we continue on the path to meet our commitments to our debt holders. Total repurchase activity in 2012 was $163 million. We continue to be active in looking at M&A but also continue to maintain our discipline, focusing on assets with a true strategic fit, a strong financial model and an appropriate valuation in relation to future growth prospects.

In this quarter, and more importantly, for the full year 2012, we had strong financial results. The ongoing experience, knowledge and dedication of our employees across our enterprise position us well for 2013.

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