Verisk Analytics, Inc. (VRSK)

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Verisk Analytics (VRSK)

Q3 2012 Earnings Call

November 02, 2012 8:30 am ET


Eva Huston - Head of Investor Relations, Vice President of Corporate Finance 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


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

David Togut - Evercore Partners Inc., Research Division

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

Kelly A. Flynn - Crédit Suisse AG, Research Division

William Clark - Keefe, Bruyette, & Woods, Inc., Research Division

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

Kevin D. McVeigh - Macquarie Research



Good morning, my name is Brandy, and I will be your conference operator today. At this time, I'd like to welcome everyone to Verisk Analytics Third Quarter 2012 Earnings Results Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. Thank you. Ms. Eva Huston, Treasurer and Head of Investor Relations, you may begin.

Eva Huston

Great. Thank you, Brandy, and good morning to everyone. We appreciate you joining us today for a discussion of our third 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 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 this call, as well as the associated 10-K were provided on Tuesday and can be found in the Investor website of our -- Investor 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 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 with that, I will now turn the call over to Frank Coyne.

Frank J. Coyne

Thank you, Eva, and good morning. Before going into comments on the third quarter, I would like to say our thoughts are with all our employees and all others who have been impacted by Sandy. We have continued to be operational throughout the storm and its aftermath and are supporting our customers at our usual excellent level of service. However, due to some travel and power issues, the management participants in this call are not in the same location.

In third quarter 2012, we delivered strong overall performance of over 17% total revenue growth and 20% diluted adjusted EPS growth. Overall, our consolidated organic revenue growth was 8.5%, reflecting strong growth in healthcare and good growth in insurance solutions. Excluding our historical mortgage business, organic revenue growth was 10.8%. Profitability was strong with an EBITDA margin of 45.9% in the quarter. Free cash flow was also strong, increasing over 15% year-to-date after adjusting for certain timing items and the previously discussed pension funding. We are pleased with our results in the quarter.

In the third quarter, our Risk Assessment revenue grew 4.9%, after adjusting for the impact of a transfer of some revenue to Decision Analytics in 2012. This growth is a continuation of what you saw in the first half and evidence of our strong subscription model. In Decision Analytics, our revenue grew almost 30%, and our insurance solutions grew about 9%, even while we continue to face tough comps with regards to storm activity in 2011.

While we certainly will see claims coming through from Hurricane Sandy, much of our claims volume revenue is contracted above current volume, and we will still experience tough comps versus fourth quarter 2011.

Our healthcare solutions continued on the excellent organic growth path we have seen in the past few quarters, growing revenue above 47% organically in the quarter. Total healthcare revenue grew -- growth was almost 130% bolstered by the contributions MediConnect continues to make. In the quarter, we generated almost $70 million in revenue from our healthcare business. Compared to 3Q 2009, our first quarter reporting after our IPO, our reported healthcare revenue increased by fivefold in just 3 years, making it a meaningful part of our enterprise.

In mortgage and financial services, we are pleased to have closed our acquisition of Argus. And in the first month since closing, performance has been on target, and our future expectations have been reconfirmed. With our mortgage tools, we are seeing recent trends continuing. Our origination-related revenue continues to grow in line with the market, while our overall mortgage revenue declined due to lower volumes of forensic review.

We remain disciplined in our use of capital and are focused on delivering shareholder returns. Year-to-date, we have spent almost $800 million on acquisitions. We are excited about these acquisitions and believe our shareholders should be pleased by this use of capital, as evidenced by the acquisition's strong initial results and strategic fit.

As we have previously communicated, we moderated our share repurchase in the quarter to about $21 million. We continue to be active in looking at M&A, but also continue to maintain our discipline, focusing on assets with the true strategic fit, a strong financial model and an appropriate valuation in relation to future growth. We also remain focused on meeting our commitments to our debt holders as it relates to delevering back to our target ratios.

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