Verisk Analytics, Inc. (VRSK)

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Verisk Analytics, Inc. (VRSK)

Q2 2011 Earnings Conference Call

August 3, 2011 8:30 AM EST


Eva Huston – Treasurer and Head of IR

Frank Coyne – Chairman and CEO

Scott Stephenson – President and COO

Mark Anquillare – CFO


Jim Kissane – Bank of America

Robert Riggs – William Blair

Eric Boyer – Wells Fargo

Michael Meltz – J.P. Morgan

Kelly Flynn – Credit Suisse

Bill Warmington – Raymond James

Suzanne Stein – Morgan Stanley

Matt Otis – KBW

James Friedman – Susquehanna



Good day, ladies and gentlemen, and welcome to Verisk Analytics Second Quarter 2011

Earnings Call.

At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to turn the conference over to Eva Huston, you may begin.

Eva Huston

Thank you, Latoya, and good morning to everyone. We appreciate you joining us today for the discussion of our second quarter 2011 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 some comments by Frank, Scott and Mark highlighting key points about our strategic priorities and financial performance, we will open the call up for your questions.

The earnings release referenced on the call as well as the associated 10-K can be found in the Investor section of our website at 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 posted on our website and available by dial-in for 30 days until September 3rd, 2011.

Finally, and 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 are summarized at the end of our press release as well as contained in our recent SEC filings.

And, with that, I will turn the call over to Frank Coyne.

Frank Coyne

Thank you, Eva, and good morning. In second quarter 2011, we delivered strong performance at 16.2% revenue growth and 24.2% adjusted diluted EPS growth. We performed well in many of our businesses and our recent acquisitions contributed as well. We were pleased to see Risk Assessment growth at 4.6% for the quarter and 4.5% year-to-date, as our continued value to customers is reflected in our revenue growth. Our insurance-facing solutions in Decision Analytics grew over 20% and 14% organically. Our healthcare solutions continued to show growth and we are working hard to implement our sold solutions for clients which will allow recognition of contracted revenue. Supply chain remains an area of focus and promise for us.

Overall, our organic growth was 8.8%, a meaningful improvement versus first quarter 2011. We improved Decision Analytics organic growth in Q2 to almost 13%, driven by both improved growth from insurance-facing solutions as well as a return to positive growth for our mortgage solutions. The mortgage market continues to represent a challenge for us as well as other companies. Mortgage insurers continue to confront difficulties achieving sufficient capital requirements, resulting in a major insurer recently announcing its potential inability to write new business without receiving an extension of a capital waiver. It is unclear at the moment how that may affect the broader mortgage market.

We are clearly focused on our mortgage business and managing it through the volatile macro environment. But even with the uncertainties in the mortgage marketplace, we believe the strength and diversity of our solutions across multiple verticals will lead to strong overall performance.

I said on our first quarter call that we expected to see improvement in total organic growth for full-year 2011 compared to first quarter results and we delivered improvement in the second quarter. Additionally, we continued to have strong conviction around our margin and overall profitability.

Excluding the recent acquisitions, our EBITDA margins in Q2 were almost 46%. Speaking of our acquisitions, we were excited to integrate both Bloodhound Technologies and Healthcare Partners into our various health solutions. We were making client calls with all these tools in hand and receiving good response.

In the quarter, we were also able to continue to drive what I believe is most important to delivering shareholder returns, EBITDA and free cash flow. We grew our total EBITDA by almost 16% and converted a large portion to free cash flow. In the quarter, we grew our diluted adjusted EPS by about 24%. As always, we’ve remained focus on delivering shareholder returns through growth in our businesses, disciplined acquisitions and our share repurchase program.

In the quarter, we invested a $141 million in new healthcare assets and purchased over a $140 million worth of shares, while also adding a new $150 million authorization. This level of repurchase was higher than in previous quarters as we saw opportunity to buy shares at an attractive price, bringing ourselves closer to our target capital structure. We believe our repurchase program has been successful and liked the flexibility it provides to ensure we can deploy our capital when prices are appropriate.

For the rest of 2011, we will remain focus on executing on the plan I laid out at our last call, namely growing insurance revenues through new solutions and cross-selling, further penetration in the healthcare space, managing our mortgage business in the face of a challenging macro environment, and creating shareholder value.

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