Verisk Analytics Inc (VRSK) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Verisk Analytics first-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.

Good morning, everyone; and thank you, Latoya. We appreciate you joining us today for a discussion of our first-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 the 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 associated 10-Q 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 filed with the SEC. A replay of this call will be posted on our website and available by dial-in for 30 days until June 4, 2011.

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 is contained in our recent SEC filings.

With that, I will now turn the call over to Frank Coyne.

Thank you, Eva, and good morning. In first-quarter 2011 we delivered strong performance in many of our businesses and also showed the first full quarter of revenue from our December 2010 acquisitions of 3E and Crowe Paradis, leading to an overall revenue growth of 13.3%.

We were pleased to see Risk Assessment growth at 4.4%, a material uptick from 2010; and I would characterize the P&C insurance environment for our customers as stable to improving for 2011. Our insurance-facing solutions in Decision Analytics grew almost 20%, including our recent acquisition of Crowe Paradis, and double-digit organically.

Our healthcare solutions continue to show growth and promise. Overall, our organic growth was 6.6%, as the strong business performance in our insurance and healthcare verticals was moderated by the continued challenging environment in mortgage, which we will talk about in more detail later in the call.

We anticipated and spoke to you about the near-term challenges for mortgage, which within Decision Analytics declined about 6% organically in the quarter versus 2010. I do not believe this quarter will be representative of mortgage solutions' performance for the whole of 2011 and do expect growth, but at a lower level than 2010. We are clearly focused on this business and how to manage it through the uncertain macro environment.

I know a lot of you will be focused on our organic growth in the quarter, which is lower than our aspirations. Given the current scale of our mortgage business and the macro trends, our total organic revenue growth will not likely reach those aspirations in 2011. However, we believe we will see improvement in total organic growth for full-year 2011 compared to first-quarter results.

We also have a strong conviction around our margin and overall profitability. Excluding the recent acquisitions, our EBITDA margins in Q1 exceeded 46%.

Speaking of our acquisitions, 3E and Crowe Paradis performed well in the first full quarter of ownership, exceeding the plans set forth at the time of acquisition. We continue to be positive on the business opportunities for both of them.

With the acquisition of Bloodhound Technologies, which we announced last week, we have added the premier provider of claims editing with the only real-time platform focused on medical fraud and abuse. The integration of Bloodhound with our other healthcare assets will add significant value for our customers, which we expect will translate into accelerated revenue growth over the course of 2011 and beyond.

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 13% and converted over 90% of that to free cash flow.

We also expanded our EBITDA margins in Risk Assessment. In the quarter, we grew our diluted adjusted EPS by about 21%.

Finally, in the quarter we priced our first public bond deal for $450 million. This strategic financing provides us with access to additional long-term debt capital at historically low rates, while also giving us unused revolver capacity of around $600 million which can be used to execute on our business strategy.

As always, we remain focused on shareholder value; and we enhanced shareholder returns through our repurchase program. We purchased over $70 million worth of shares in the quarter and added a new $150 million authorization. We believe our repurchase program has been successful, and like the flexibility it provides to ensure we can deploy our capital when prices are appropriate.

For the rest of 2011 we will remain focused on executing on our strategies including the following four items. One, growing our insurance businesses through cross-sell and innovation. The cross-sell opportunity we outlined at Investor Day is $900 million in addition to incremental revenue opportunities with new solutions.

Secondly, further penetrating the healthcare space and integrating Bloodhound with our other healthcare assets, both from a customer-facing perspective as well as a technology perspective. We are also leveraging our healthcare fraud-detection capabilities to drive containment of medical bill costs in our P&C customers' claims.

Third, driving growth in mortgage underwriting solutions and winning new opportunities on forensic audit. We continue to expand our customers on both parts of the business. We are also ensuring expenses stay in line with the business opportunities.

Four, creating shareholder value through growing our EBITDA and free cash flow as well as through strategic capital allocation. With approximately $150 million in acquisitions and stock repurchases year-to-date, we have ample capacity to continue to buy strategic businesses.

I continue to see opportunity for Verisk. As the recent climatic events illustrate, risk is everywhere and smart business people need the tools to help them properly analyze the risk to make appropriate decisions.

I will also make a comment on the filings you may have seen around my intention to sell stock under a 10b5-1 program. I have a plan to diversify a portion of my holdings, as do a few other executives, which is prudent for personal financial planning. There is nothing else to read into those sales.

Before we dig into the financials I would like Scott to share some perspective on Bloodhound, our acquisition program and an internal development.

Thank you, Frank. As you can see we have been busy on the M&A front and are very excited to add Bloodhound Technologies to our suite of healthcare analytics solutions. Bloodhound is very unique in its ability to provide claims editing in real-time to its customers, which include both private payers as well as state Medicaid agencies.

There are three key elements that we are focusing on here. The first is claims editing is an important part of payment integrity, which is a market estimated at over $5 billion.

The real-time pre-adjudication nature of Bloodhound's claim editing makes this a more sophisticated offering than some of the other established large players. By bringing Bloodhound's sophisticated offering into our suite of services, we have the ability to provide a more comprehensive offering to our clients, which will continue to differentiate us from the existing providers.

Secondly, we think the technology that Bloodhound has built will speed us to market with a real-time solution for our fraud analytics as well as our front-end solution which is focused on healthcare risk and improving health care outcomes. This is a goal we have had, and Bloodhound saves us significant time as well as allows us to avoid certain development costs.

Thirdly, the acquisition comes with a great team and a great client base, including state Medicaid programs. We expect to be able to sell our existing services to Bloodhound's clients and also to have our clients buy their services.

Bloodhound competes with some big players like Ingenix and McKesson. But we believe Bloodhound has a better platform and has been winning business in competition against them. Within healthcare we see further opportunity to expand, with an emphasis on quality measurement, population management, and revenue optimization.

Talking more broadly about our acquisition program, we are pleased to have a good pipeline across multiple verticals. The type of deals you have seen us do recently, at $80 million to 100 million each, are beginning to add up.

While we are certainly open to doing larger transactions, as a first priority we look for alignment with our strategy. In the end we are focused on shareholder return, with performance of the acquisitions expected to meet our high IRR standards.

We are also focused on continuing to challenge our business leaders to focus on the assets we have and how we can transform them into new solutions that fill client needs. A few examples of this include using our weather and climate risk assets to assist insurers in their assessment of risk and adjudication of claims; taking our considerable healthcare fraud capabilities in order to identify fraud in medical P&C claims; and using our database of property information on both homes and commercial buildings to help property insurers and reinsurers better understand and improve exposure data that are used for catastrophe modeling.

With that summary I will turn it over to Mark Anquillare, our CFO.

Thank you, Scott. As Frank noted, in the first quarter we delivered 13.3% revenue growth and 6.6% organic growth.

For the first quarter our Decision Analytics segment revenue continued to lead, with 21.7% growth. Decision Analytics' organic revenue growth, which was 8.6% in the quarter, excludes the acquisitions of Strategic Analytics, Crowe Paradis, and 3E.

Within Decision Analytics our loss quantification solutions continue to stand out in this quarter, with 26.9% revenue growth, all organic. We continue to benefit from our 2010 new contracts on the claims side. We are also gaining traction with the underwriting tools in newer solutions such as contents estimation within loss quantification.

The revenue growth in fraud identification and detection slowed to 9.9% for the first quarter and 0.6% organic. We continue to see solid performance in our insurance fraud and related solutions in the quarter.

Crowe Paradis also performed well in its first full quarter. Our healthcare fraud assets continue to perform and will ramp during the remainder of 2011 as we implement signed contracts.

As expected, within Decision Analytics the mortgage business continued to weigh on growth in the first quarter. In the quarter, our mortgage solutions declined 3.2% versus their near-peak revenue point in first quarter of 2010.

While forensic audit revenues declined in the quarter, the positive news on forensic audit is that as of March we feel that the servicer delay issue that we mentioned in the fourth quarter had been resolved. We were also able to partially offset declining volumes from one large customer with increased volumes from other customers.

Underwriting solutions revenue also declined in the quarter as originations in the market declined. However, we continue to expect growth to resume in mortgage in the second-quarter 2011 based upon our internal business pipeline, which should move us to a 10-plus-% growth rate for the year.

In loss prediction, total growth was 43.4% for the first quarter and 12.6% organic. Our catastrophe modeling solutions performed extremely well in the quarter, and revenue from climate risk analytics solutions continued to grow nicely.

In healthcare we had continued growth in the first quarter, and we continued to receive some good news in sales. We are now focused on implementing signed contracts.

In 2011 we will benefit from the addition of 3E for a full year, whereas we only brought in the revenue in the end of December in 2010. We are happy with the performance of 3E in its first quarter with us, as it exceeded our internal plan.

Turning to Risk Assessment, we grew revenue 4.4% in the quarter, which was a nice increase versus 2010. Our industry standard programs grew 5.5% in the quarter, reflecting value-added price increases and new sales as well as a moderation of premium declines at our customers.

Our premium leakage solutions also added to the growth. Our property-specific information revenues grew 1.6%, reflecting lower volumes at certain customers.

EBITDA for the first quarter was $139.1 million, as outlined in Table 3 of our press release. EBITDA increased 12.5% for the quarter, and our EBITDA margin was 44.4%.

In the quarter, the growth of our Risk Assessment margins was partially offset by the lower margins in Decision Analytics, reflective of our new acquisitions and investments, which we believe will bear fruit over time, and also the reallocation of corporate resources to support growth in this segment.

To delve into the segments, EBITDA margin was 37.7% for Decision Analytics and 52.8% for Risk Assessment in the first quarter.

For Decision Analytics the new acquisitions of Crowe Paradis, 3E, and Strategic Analytics created good opportunity for us to grow their margins, but in the near terms were negative impact of about 2.6%. We also continued to invest in our businesses, including a reallocation of corporate resources, which had a margin impact about 0.7%. Within Risk Assessment, margins expanded from first quarter of 2010 and also from fourth quarter, as the operating leverage was enhanced by cost efficiencies.

Our annual salary increases will be effective in the second quarter and will increase corporate expenses by about $2.5 million per quarter beginning with the second quarter of 2011. Additionally, we expect incremental costs of about $2.2 million in the second quarter related to the 2010 equity award costs, primarily resulting from accelerated vesting upon attainment of age 62 by some employees. About 60% of this option impact will be seen in the Risk Assessment segment.

Our interest expense was up about $1.1 million versus 2010 as we increased our borrowings to fund acquisitions and share repurchases. Also, going forward in 2011 we will have the interest expense on our new 5.8% $450 million bond. We used the proceeds from the bond to pay off $295 million of our bank debt; and a portion of the remaining cash of approximately $150 million was used to fund the Bloodhound acquisition. We are very pleased to have tapped the market for long-term capital at historically low rates.

Our reported effective tax rate was 40.1% for the quarter. For 2011 we would expect our tax rate to be between 40% and 41%. This is slightly lower than our historic rate.

Coming down to the net income line, we are focused on adjusted net income, a non-GAAP measure which we define in the current period as net income plus acquisition-related amortization expense less income taxes on that amortization. Our adjusted net income increased 14.3% to $70.9 million for the quarter.

Adjusted EPS on a fully diluted basis was $0.40 for first-quarter 2011, an increase of 21.2%. The average diluted share count was 177 million in the quarter. And on March 31, 2011, our diluted share count was 175.9 million shares.

Turning to balance sheet, as of March 31 our cash and cash equivalents were $101 million. Total debt both short-term and long-term totaled $830.5 million at March 30, down by about $9 million versus fourth quarter, reflecting cash flow from operations which was partially offset by our $73.4 million in share repurchases and our annual short-term incentive payments which were incurred in March.

Our debt ratio was about 1.59 times debt to trailing 12 months EBITDA at year-end, well within our covenant levels of 3 times. Our debt capacity is about $750 million even after executing on our acquisitions and repurchases in 2010 and first quarter of 2011. Our capacity will continue to grow with our free cash flow generation.

Repurchases in the quarter were 2.2 million shares for a total of $73.4 million. At quarter-end we had $164.1 million remaining under our share repurchase authorizations, including the additional $150 million authorized by the Board in the quarter and announced in April.

Free cash flow in first-quarter 2011, which we define as cash from operations less capital expenditures, was $126.8 million, a decrease of $1.5 million versus first-quarter 2010. Operating cash flow increased about 6% in the quarter, but was about 10% growth adjusting for incremental pension funding of about $1.9 million and a technical delay from a government customer which was resolved by quarter-end.

We had a major upgrade to our computing environment and related software, which increased CapEx for the quarter. These type of major upgrades occur once every few years. Excluding the upgrade of about $8.4 million in the quarter, our capital expenditures are about $10.3 million or about 3.3% of revenue.

We continued our strong free cash flow conversion of EBITDA, which was 91.2% in the quarter, reflecting the front-weighting of our cash flow to 1Q as certain invoices are pre-paid for the full year.

With that, I will ask the operator to open up the line for questions.

(Operator Instructions) James Kissane, Bank of America Merrill Lynch.

Thanks. Frank or Mark, can you give us maybe a sense of the visibility that you have to achieving the 10% growth in mortgage in 2011?

Sure, Jim. This is Mark. Good morning. There's three things that I guess we can focus on. First of all, we mentioned that there was a delay during the fourth quarter inside of one service provider; and we do note that that has been resolved. So that is one data point.

The second one is within a large GSE we continue to be advised of ramping volumes. So that is a positive, and we have seen that.

And the third aspect of it is it's just business in pipeline. And a combination of signed contracts where we need to implement and new sale opportunities that continue to grow, all seem to bode well with the tempered amount that we have talked about. We have seen some drop in a couple of the forensic audit review.

So those are the goods and the bads inside of that, and the visibility we would say.

Okay, that's helpful. Why is the one large mortgage insurer not growing volume with you as they did in the past? Have they diversified their vendors at all?

They have not diversified their vendors. I am not sure we can exactly see into their -- I think it has to do with a little bit on their side the more macro trend, as to their own personal backlog and what files they intent to review, and at what time they intend to review them.

Yes, Jim, it appears to be their own internal processes as to how they put out their work.

Got you, thanks. Scott, just my last question. With Bloodhound, do you have all the pieces in place in your healthcare business? Or are there still some holes that you want to fill?

And then maybe take a stab at, given the composition of the business, the portfolio, what you think the organic growth rate for healthcare is longer-term.

To your first question, no; we don't have all the piece parts. But Bloodhound is very significant as it relates to the payment integrity part of what we do. So our focus for the time being will be with respect to the claims end of the marketplace, that we will focus on the integration of the assets that we have got.

But with respect to some of the other topics that I talked about -- including population management, quality metrics, etc. -- we actually think there are a number of places we can go, through acquisition and internal development, to help round out what it is that we have got.

We expect the organic growth to be strong. The category is large. Customers are looking for new solutions.

And we are taking steps actually to strengthen our interface with our customers. We have really beefed up account management, which is critical, because you can provide the tools but you really need to help the customers know how to use the tools.

So we feel good about having taken those steps. So we expect good performance from healthcare going forward.

Scott, can you just give us an update on what your IRR targets are for your acquisitions? And I will leave it at that. Thank you very much.

I don't think we have really changed that from the statements that we have made before, where we are looking -- the test that we are putting the acquisitions to is a rate of return which is greater than our weighted average cost of capital. And we continue to be there.

Thank you.

Michael Meltz, JPMorgan.

Thanks. Three questions for you. To Jim's last one, what do you view as your weighted average cost of capital?

This is Mark. I think everyone has their view of that. I guess our weighted average cost of capital probably would hover around 9%.

But the companies that we are buying have a greater risk profile than Verisk, so we would certainly add to that to reflect that additional risk. So our own internal benchmarks and IRR targets for some of these acquisitions would be -- I don't want to say considerably -- but higher than certainly the 9% that we place on ourselves.

Okay. Then I am sorry; I think I got a little confused when you were talking. You had braced us for mortgage to have a slow start, but the number for this quarter -- you first I think said down 6%; then there was a down 3%, which just isn't that bad if it is one or the other. Can you just clarify the difference between the two, please?

Sure. I think one was -- were you talking about organic versus --? Got it. Remember Strategic Analytics is a business that is inside of our mortgage business; so when we talked about 6% that represented an organic look at things.

To the extent that we have Strategic Analytics in, it is a total. And it's not -- it's -- that's the 3%.

Okay. So given that the servicer issue had cleared up, you expect to grow mortgage in Q2; is that correct?

That's correct.

Okay. Then, Mark, on the margins, you had a margin in the quarter that was better than I had modeled. I am just wondering.

You had previously said M&A would be a 150 bp drag versus -- on margins this year. Is that still the case? Or does Bloodhound change that?

We were talking about the effects of 3E and CP. I think even in the quarter I think we did experience about 1.6 on those businesses. So that was consistent.

It should improve over time. So I think the 150, about 150, is about right.

Bloodhound, I think the margins there are maybe a little bit better than those two. So I don't think there will be much of a drag there; very small in that case.

Then your point about costs, you always have the sequential ramp in expenses from Q1 into Q2 at Risk. It is -- the $2 million equity award, is that a one-time item? Or is that going to be baked in, in the following quarters as well?

Okay, so that's a good question. Let me clarify.

The way the accounting works on the options, as probably everyone knows, there is an increase in the award in 2010. We vest over four years, so the expense that were incurred because of the 2010 award is greater than the 2006 award.

But the other little item here that we tried to highlight is that there is probably an additional cost that is going to affect 2Q, because our program is set up such that if and when someone reaches age 62 they vest immediately. So as a result we need to expense that immediately.

That is going to cause about a $2.2 million in total combination of the vesting on age 62 as well as the increase in overall value of those equity awards in the second quarter. It does moderate then in third and fourth quarter, because it is a one-time increase associated with that at payment of age 62. So I hope that is clarifying.

Let me just ask it this way. Scott, two months ago when you reported earnings, you had expected Verisk margins excluding acquisitions to be up year-over-year and then acquisitions to be a drag. Has anything changed in that regard? A drag of about 150 bps. Has anything changed in that regard?

I think that's true. I think our margins were probably a little better in the quarter than maybe what we talked about then; but I think that is still the same theme.

Thanks for your time.

Andrew Jeffrey, SunTrust.

Hi, good morning. Thanks for taking my question. I appreciate the color on the mortgage visibility to Jim's question. Can you address a little bit, maybe when you take a step back, especially on the forensic audit side of that business -- originations I understand are going to be very cyclical. But on the back-end audit side, is there may be a sense -- is this customer a little bit, where you have seen the slowdown, a little bit of canary in the coal mine? In terms of structural demand for these products, given what appears to be a situation in the banking industry, where the big commercial lenders seem to have shored up their capital, maybe they are coming back into the market.

Maybe what we are seeing is actually just a change in the risk cycle, which seems to happen as the economy starts to get better and banks want to get back into the market and change their focus from fraud management to making loans again. Could you just comment on your overall view of that?

Yes, this is Scott. There are a couple of currents that move through the mortgage business that will impact us on a go-forward basis. One of them is in the period 2008 to 2010 we did have a historic level of defaulting and foreclosing loans, which have required the different players in the insurance value chain to respond to that. One of the responses is forensic auditing.

So the volumes -- and our business is transaction priced. So the rising volumes that we have seen have been underpinning the growth of our revenue in the forensic audit category.

We would expect, all else equal, that there will be a normalization of levels of defaulted and foreclosed loans on a go-forward basis. And that would have -- that would place downward pressure on our forensic audit revenues, all else equal.

There's a couple of other things to take into account. One is, there are multiple players at both the market-making level as well as the mortgage-insuring level. And we have not penetrated fully all of those customer sets; something that we are working to do.

Another current in there is that the market for securitization, the private securitization market, basically went away in the meltdown. Should that return, that was actually one of the strongest parts of our business as recently as 2007, into early 2008.

Then as you point out, there is the overall cycle of origination volumes, where our automated solutions again are transaction priced and therefore relate to where we are in the mortgage cycle.

The last thing I would mention is that it does take time to work off the backlog of bad loans. From all indications that we have received from our customers, the backlog of bad loans remains high.

As you can I am sure understand, a loan gets originated in year zero; it could be a three-year ARM, it could be a five-year ARM. Oftentimes the problems associated with any particular vintage don't show up for years. So there is a lot of -- there is a time lag factor in terms of the nature and the quantity of bad loans that are in the marketplace.

And I would just make one -- this is Frank -- one additional observation. That is that I do not think there has been any change of focus from fraud detection to what I will call cash flow underwriting. What I would say is that there is a heightened recognition that you need to underwrite at the time of origination, and I don't expect that emphasis to go away, certainly anytime soon. (multiple speakers) which is an important part of our products.

Okay, that's really helpful. All else being equal, you still think mortgage is a double-digit organic revenue growth business?

In 2011? Yes.

Structurally though, it sounds like you feel pretty good about longer-term growth as well.

Oh, yes, we feel good. It is going to be a cyclical business, of course; but that is why we diversify our revenue streams.

Okay. With regard to healthcare, with the addition of Bloodhound, pro forma what percent of your revenue is going to be healthcare related?

Then do you have a target there? Or is it just -- or is it more a matter of making sure you have all the capabilities in place, rather than looking at it as a percent of your overall revenue?

You take the pro forma question, I'll (multiple speakers).

Put it this way. I think we do not have a target of how much revenue. I think what we are always focused on is strategic fit, as Scott mentioned in the earlier call.

We talked about it being 6% in 2010. Clearly we expect and hope the core business or the existing business continues to grow; and combined with Bloodhound we think that will accelerate it. So those are obviously good news.

Bloodhound is probably a smaller type of acquisition, that $10 million type revenue range. So it is a small base which we hope we can grow upon.

Maybe I will turn it to Scott to talk more strategically about where else we want to play.

Well, the healthcare marketplace for a vendor like us is an interesting one. Because you have a couple of very large vendors, and then you have many, many small ones.

The interesting fact in this market at this moment is that scale and incumbency are not necessarily what determines success here. Because the methods that have been around for years are increasingly under question by the customers, and in light of the changing healthcare environment.

So our focus is on winning and being excellent. We feel like we have put ourselves into categories where if we succeed we have plenty of room to grow, and that really is our focus.

But it is about the strategy first and foremost. So we are trying to do our risk-adjusted predictive modeling. We are trying to engage in payment integrity. These are large categories, and if we do our work well we should experience a very healthy level of growth.

Okay, and one more quick one if I may. Would there ever be a consideration in healthcare in particular where you would start to look at yield management or yield improvement type models, as opposed to risk models?

Yield management models? What --?

I mean so for example AR automation technology that helps payers, providers get paid.

No. Well, you never say never; but that is very far away from where we are right now. Basically we are about risk -- risk analysis. That is what Verisk is about.

So what we are trying to do is get to the transaction level, where somebody is paying for an outcome; and then the outcome is observed and it does or does not conform with what was expected upfront. So that really does take us into the world of care is being delivered and being paid for. Who is at risk for the payment? What is the outcome? And how can all of that be improved?

Okay, thanks.

James Friedman, Susquehanna.

Hi. I wanted to ask about the Risk Assessment category. Could you talk a little bit about pricing in that line and your recent observations about your pricing initiatives?

Yes, I mean -- this is Mark. As you've probably seen inside of the industry, things seem to be stable to improving. It relates to the end of 2010 and into 2011. But remember the effects of 2010 premium in the industry don't directly help us from a Risk Assessment industry-standard program perspective until a couple years out.

If you were to look at 2011 it really relates to the fact that the premium declines at our customers in 2009 were moderated relative to the declines in 2008. So that helped us a bit.

We continue to add services, provide solutions to them inside of those industry-standard programs. And we really kind of take the two as a combined look, and when we price our product it takes both those things into account, the premium as well as the price. As we talked about in the past, we have typically tried to keep those increases kind of deflationary.

What you have also experienced inside industry-standard programs is new sales where companies have extended out in lines or geographies. We have also performed well inside of what we refer to as premium leakage; that is kind of a little service around personal automobile which contributed to those.

Just to give you a little flavor, commercial lines is probably more important to the overall pricing in those invoices. 2009 premium, if you looked at some of the industry information and data, 2009 premium is down 6.8%. 2010 was down 2%; so that gives you a little bit of a look forward, if that helps you.

Yes, that's very helpful, Mark. I wanted to sneak in another about the mortgage segment, not to beat a dead horse here. But if you could describe what percentage of revenue your largest customer represents in that segment, I think it would be comforting; or it would help the analysis for investors.

I think we had two customers inside of mortgage that our around if not a little better than 50%. One of them is a GSE I think we've talked about.

Okay. That's helpful. Then my last thing is, Mark, the tax rate was just a bit different -- lower than what we had anticipated. Is that 40% -- is that what we should contemplate for the full year? Because I think you had guided 41.7%. If you could update us on the tax rate, that is my last one. Thank you.

Yes, I think we've typically talked around 41%. Tax changes -- New Jersey came out with something recently. We just operate in very high tax rate jurisdictions -- New York, New Jersey, California, Massachusetts.

We're going to be somewhere around the midpoint of 40% to 41%, and I would probably keep it in that area. It's slightly better than maybe what we talked about in the past, but there is nothing materially different that occurred in the states that we have operated.

Thank you.

Kelly Flynn, Credit Suisse.

Morning, this is Norman sitting in for Kelly. Thanks for taking my question. A question about the margin impact for the acquisitions, for 3E and Crowe. Is it fair to assume that they are going to be weighted more towards the first half of this year and the margin impact will moderate as the year goes on?

I think that is true. With growth logically there is scale to those businesses; and hopefully those margins will improve as we progress through the year. But in the context of the bigger Verisk P&L, it is not that dramatic of a shift between first quarter and fourth quarter. But I think notionally you are correct.

Okay, thanks. You made a comment out property-specific having lower volumes from certain customers. Is that just a timing issue? Or is there more of a secular slowdown going on there?

Well, I wouldn't call it secular. I think there's a couple things inside the volumes. One, the weather was tough in January and February. That was more timing; so we just couldn't get people out to do what they needed to do.

And inside of a couple larger customers there was some volume reductions, and that could be a little bit around how they have done their underwriting and their underwriting guidelines. It is something that could continue into and throughout 2011.

Okay. That's helpful. I guess my last one would be on statistical agency. Should we expect the higher growth that we saw from invoices and customer services? Should that flow through for the rest of the year as well?

The statistical agency numbers, they are little bit more project oriented. Though I know that, at least as we think about some of the projects that are ebbs and flows, I know that that is more timing.

There is a piece inside there that is probably some good news; it is a little bit around workers comp information solutions that we have. But I wouldn't tell you that it is going to be materially different. I would not keep that growth rate throughout the entire year. It will moderate a bit.

Okay, thanks. That's helpful.

Suzi Stein, Morgan Stanley.

Hi, thanks for taking my question. Can we just go back to the margin question, just to get a longer-term picture? It looks like the acquired assets had an EBITDA margin of about I think 16.7%, which is quite a bit lower than the 37.7% in Decision Analytics. You have given us a picture of what the drag will be in 2011.

But over what period of time do you think you can get these margins on the acquired assets up to your average? Then can you give us maybe more of an update on where you are as far as integration and any cross-selling efforts from recent acquisitions, and over what period of time this will be complete?

Okay. Let me take on the margin question. The first thing is, I think the businesses that we typically acquire have natural operating leverage to them. So we would clearly expect margins to increase.

I think it would be hopefully notable inside the acquisitions over the course of the next two to three years. You would expect that.

But inside your question you talked about getting it up to Verisk-like margins. I am not sure we have that high of aspirations for those.

The 3E business is more of a database business that has some natural scale and ramp to it. There is a piece that relates to people, authoring and doing work around MSDSes, so that has a little bit more of a labor intensity to it.

Similarly, Crowe Paradis, a lot of analytics, but there is an element of labor intensity to some of that. There is scale, but not like a database business.

So that is some of the aspects of why margins will be high and growing, but may not cap out like Verisk. I think your second question was more on cross-sell?

Just kind of where you are in integration and cross-selling from these acquisitions.

So why don't you take the Crowe Paradis?

Yes, Suzi, this is Scott. Crowe Paradis as I think we explained before is basically benefiting from the fact that other parts of our business have a big footprint in terms of communicating with claims departments. And with the advent of Section 111 reporting requirements, there was a strong movement by the insurance industry to turn to us for our 111 reporting solution. Over 600 insurers signed up for that.

What we're in the process of doing right now is getting the Crowe Paradis solution positioned with those customers. The early returns are good. Certainly our ability to get into a very engaged conversation with the insurers about -- here is value add; here is a way that you can thrift money in the claims process, is something that we are finding a great deal of receptivity to.

So we have taken steps to make that happen. We are also going to -- we have also actually essentially completed a technical integration where it is possible to immediately move data from the pre-existing Section 111 platform over to the Crowe Paradis analytic platform. So we are feeling like we are on track there.

3E is more of a standing-alone platform, although we have taken first steps to try to build some bridges between what they do and the insurance world, where in our view carriers ought to be -- on the liability line should certainly be very interested in whether or not a company is being completely diligent with regard to their environmental health and safety exposures.

But the integration agenda there is sort of a higher level one and kind of a longer-term one.

Longer term meaning -- how many years would that take?

Well, what I am really trying to get at there is it's a very broad kind of an integration where we are trying to -- there is a missionary quality to it I guess is what I am trying to say. Where we are trying to expose this compliance requirement inside of operating companies to the insurance world, to see whether and how interested they might become in that. It is very early days and I think that that will be a long march.

But a completely different point is that the opportunity to grow the 3E business really is not dependent upon that integration. It is dependent mostly upon executing very well inside a regulatory environment which is putting more, not less, pressure upon operating companies.

Yes, Suzi, Frank here. I think that is the main point here. Our primary focus with environmental health and safety will be to use 3E as a springboard into other opportunities. So the secondary impact that we have, that Scott outlined with regard to our insurer customers, is something we will take advantage of; but it is not really going to be the primary focus.

Okay, thank you.

(Operator Instructions) Robert Riggs, William Blair & Company.

Hi, thanks for taking my question. Just a quick follow-up on some of Scott's comments around acquisitions.

From a financing standpoint it sounds like you guys are in great shape for doing additional deals. But from an operational capacity standpoint, how do you feel about going into the market right now and still making sure you are getting the most out of the recent acquisitions you have done? I mean it sounds like the 3E and Crowe Paradis is going very well, but how do you feel there?

Then also, has the priority changed in terms of the verticals that you are seeking out? It sounds like some good things are going on in healthcare, supply chain. But is there maybe an opportunity to complement the mortgage business or maybe broader financial services? Thanks.

Well, you had several questions in there and they are actually all good topics and things that we spend a lot of time on. Fundamentally we feel good about our ability to both identify, acquire, and integrate assets on a go-forward basis. But underneath your question we do have -- we do a lot of different things inside of the Company. And one of the things that we are spending a lot of time on this year is trying to find a way to relate our existing assets one to the other, in a way that hopefully we can gain both efficiency and a level of integration that will maybe make it a little bit more orderly when the next acquisition comes in.

Not that there is an issue, but we are trying to be out ahead of how do we structure ourselves so that we can, with relative ease, integrate the next acquisition. So it is not -- we haven't had a problem, but we are attempting to organize ourselves so that it becomes even easier. And we have dedicated additional resources to supporting the integration agenda.

With respect to the priorities, they haven't really -- I would not say that they have changed a lot. We have talked in the past about the fact that healthcare is a space that has plenty of room to run in terms of acquisitions. Environmental health and safety and the whole supply chain category is another one where we think that there is a great deal of opportunity. So thematically we really have not shifted focus here.

And just as an aside I think we talked about, rightfully, the strategic aspects of integration. We are always focused on the administrative side too, where we (technical difficulty) that everything comes in from a control and compliance perspective.

Cash is under the corporate umbrella. And to the extent that we think about data security and other issues that may be from a risk management perspective, those have all been taken care of and focused on, upon the closing of the acquisition.

Great. Thanks for the detail.

There are no more questions. I will turn the call back over to Frank Coyne.

Okay. Well, thank you, everyone, and thanks for joining us for our first-quarter 2011 call. We appreciate your questions, and we appreciate your support. Have a good day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Good day.