Verisk Analytics Inc (VRSK) 2011 Q4 法說會逐字稿

Good morning. My name is Kanisha, and I will be your conference operator today. At this time, I would like to welcome everyone to the Verisk Analytics Fourth Quarter 2011 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

Ms. Eva Huston, you may begin your conference.

Great, thank you Kanisha, and good morning to everyone. We appreciate you joining us today for the discussion of our fourth quarter and fiscal year 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 the call up for your questions.

The earnings release referenced on this 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 March 29, 2012. 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, and information about the factors that could affect future performance is summarized at that of our press release, as well as contained in our recent SEC filings.

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

Thank you Eva, and good morning. In the fourth quarter 2011, we delivered strong performance of almost 20% revenue growth and over 25% diluted adjusted EPS growth. Our performance for the fiscal year was also strong, with 17% revenue growth and 25% diluted adjusted EPS growth. These results are evidence of our discipline in execution. We are pleased that the market has recognized this through the strong performance of our stock price in 2011. We've performed well in many of our businesses, and our recent acquisitions also contributed. Risk assessment grew 3.9% for the quarter and the full year, as our continued value to customers is reflected in our revenue growth. We also saw improvement in property- specific revenue growth in the fourth quarter.

In the quarter, decision analytics revenue grew almost 35%, and our insurance solutions and decision analytics grew almost 15% organically. For the full-year, decision analytics grew almost 30%, with similar growth from our insurance solutions. Our health care solutions revenue grew almost about 37% organically in the quarter, as we continued on the double-digit growth trajectory we started to see in the third quarter. Overall, our organic revenue growth was 7.6% in the quarter and for the full year. Decision analytics organic growth in Q4 was 11%, driven by both strong growth from insurance-facing solutions, as well as the accelerated growth in health care. The mortgage market remained challenging with the macroeconomic conditions continuing to work against us.

We continue to have conviction around our margin and overall profitability. We are pleased to deliver 25% growth in diluted adjusted EPS for 2011, and over 16% growth in EBITDA, while expanding margins to over 46%, excluding the recent acquisitions. As always, we remain focused on delivering shareholder returns. We remain determined to find attractive M&A opportunities to take advantage of our substantial balance sheet flexibility. We bought $41 million of shares in the quarter, a lower amount than in previous quarters, as we manage our buy-back as part of our broader capital allocation plan, excuse me, including acquisitions. We remain interested in using our capital as appropriate for buy-backs, as evidenced by our $300 million new authorization announced in January in new authorization announced in January 2012.

As I look forward to 2012, I see a consistency in our business plan, but also new opportunities on the horizon. I have confidence we can continue to execute on that plan and realize attractive growth from the insurance space. We have set our health care business on a positive path to continue to grow and expand its footprint. I also think 2012 will bring more opportunity in our supply-chain business, as we work to weave our solutions and analytics together, and also continue to pursue acquisitions in the space. Mortgage is likely to remain a soft spot for 2012, but we are also ensuring that we use our skill sets in ways that meet the evolving needs of the mortgage market, as well as across the broader financial services sector. Now I'll turn it over to Scott to talk about the progress we are making in a number of our business areas.

Thank you, Frank. I've talked about innovation and it remains a key focus of our execution plan. Innovation means a lot of things to a lot of people, but to us, it is about both staying ahead of the market as well as meeting your customers where they want you to be. We continue to invest in new products and we are committed to this as a constant inside of our plan. While our margins continue to expand and we must also ensure that margin expansion does not come at the expense of future growth. One great example is the investment we're making in our unified healthcare technology platform, which will be a 2012 and into 2013 project, and will provide simplified work flow for our customers. We're leveraging the platform we acquired in the Bloodhound acquisition, and are consolidating our fraud and abuse analytics and creating a data submission standard that will power both the front-end underwriting and back-end fraud solutions, thereby improving our customer's ease-of-use, and facilitating our ability to cross-sell. We are working to move closer to clinical data, as it will be very useful inside of our overall analytic approach.

Another example of investment is our next generation platform and the expanded perils for our catastrophe models, which will help our customers use our tools in broader way than in the past, including in making underwriting decisions. We are investing over $10 million between these two projects. Both of these projects are a result of us seeing our customers' needs and pain points, and working to make our solutions not just the best analytical tools, but also the ones that are easiest to use. Another focal point for us is integration, which is quite important as we grow. The unified health care platform I discussed is an example of how we are quickly moving to bring our recently acquired HRP and Bloodhound assets together with the rest of Verisk Health.

The creation of our underwriting solutions group also shows our ability to successfully pull together relevant parts of our organization. The underwriting team has brought together a number of our underwriting tools, with a particular emphasis at this point on personal lines, to provide a more holistic view of a customer's underwriting process and create efficiencies. The formation of this group, which was announced in January, will not change any of the financial reporting structures you see, but our team will be rewarded for their success. We expect that continuing to evolve our business organization as needed will further align our customer success with our own.

For those of you are going to attend or listen to our Investor Day on March 8, you will hear more about these projects and initiatives, as well as hearing directly from our business unit leaders, whose passion and creativity and discipline are what will drive our Company forward. These are the people who are looking to expand and re-imagine our position in the market to enlarge our growth opportunity, and I hope you have the opportunity to spend time with them. With that, I'll turn it over to Mark to talk about our corporate financial results.

Thank you, Scott. As Frank noted, in the fourth quarter we delivered 19.9% revenue growth and 7.6% organic revenue growth. For fiscal 2011, we delivered 17% revenue growth, also with 7.6% organic revenue growth. For the fourth quarter and fiscal year, our decision analytics segment revenue continued to lead, with 34% and 28.9% growth, respectively. The decision analytics segment growth organically, which was 11% in the quarter and for the fiscal year, excludes the acquisitions of Crowe Paradis, 3E, Bloodhound and Health Risk Partners.

For 2011, we have converted our decision analytics revenue categories to those we previewed with you in the supplemental revenue data provided in the third quarter. We have received positive feedback from the market on the transparency of this financial data. Going forward, we will use the vertical categories to report within decision analytics. We have not changed any of our historic financial results, and our segment reporting remains the same. Last quarter we provided historical information in these same categories back to 2008 for your reference. As a reminder, we have grouped revenues by the primary end market of the various parts of our businesses. In insurance, key solutions include insurance fraud solutions, including claim search; our catastrophe modeling solutions for AIR Worldwide, and our insurance loss quantification solutions from Xactware. This grouping is the same as we have referenced in the past as insurance-facing solutions in decision analytics. In mortgage and financial services, we include our Interthinx underwriting and forensic audit tools facing the mortgage market, as well as our strategic analytics businesses, which also serve other consumer finance markets.

Starting in first quarter of 2012, we've also been including our ACI property appraisal tools facing the mortgage market in the mortgage and financial services category to reflect a management reporting change that split the mortgage appraisal tools from the appraisal tools used in the insurance space. These mortgage appraisal tools represented about $11 million in revenue in 2011, with lower margins than the remainder of risk assessment. These financial contributions, which were previously reported as a part of the property-specific revenue grouping in risk assessment. Health care includes all of the Verisk health tools, including DxCG, TierMed, D2Hawkeye, HCI, Bloodhound, and Health Risk Partners. Specialized markets includes our climate risk analytics provided by our AER business, as well as the 3E component of our supply chain risk management solutions.

Within decision analytics, our insurance category grew 19.5% in the fourth quarter, and 14.6% organically. For the fiscal year, revenue from the insurance category grew 21% and 14.6% organically. We continue to benefit from growth in our claims tools, as well as the cumulative effects of higher claims volumes due to 2011 weather events, which drive additional transaction revenue when customers exceed the maximum contracted claims volume totals. We also had some benefit from custom work for a large customer and continue to see growth in underwriting tools and newer solutions such as content (inaudible - background noise) within loss quantification. We are generating revenue from our international expansion, and plan to gross contribution over time. To help with your model transition to our new categories inside decision analytics, our revenue formerly reported as loss quantification grew 27% in the quarter. We will not be reporting this separately going forward.

In the quarter, catastrophe modeling solutions continued double-digit growth due to new and expanded customer relationships from our core catastrophe model projects. When we observe market share over the past year, we have increased for both the commercial and personal lines primary carriers, evidence of the cross-sell success. We also had a good quarter for both our core catastrophe models for investors, as well as for catastrophe bond projects, an area which we -- which our market shares is over 85% in 2011. Our insurance fraud claims also continued good revenue growth. The revenue in mortgage and financial services declined 7.2% in fourth quarter and declined 1.9% for fiscal year 2011, reflecting the weak macro-environment for originations and the downward trend in the number of loans that are delinquent, defaulted, or in foreclosure. Based on those trends, revenue from both underwriting and forensic solutions declined in the quarter and in the fiscal year, as new customers and increased usage by existing customers was not sufficient to offset the double-digit decline in origination versus 2010. On the forensic audit side, revenue continued to climb as new customers were not enough to offset the lower volumes of a large customer we have previously discussed. Our outlook for 2012 for mortgage remains negative, as the current market makes it difficult to predict trends for the majority of our products. It is possible the trends seen in the fourth quarter on revenue continue throughout 2012; however, we remain focused on building our skill sets by offering solutions such as contract underwriting and other tools to respond to current and long-term trends in the market.

Health care continues to prove out the opportunities we've spoken about, with total growth of 170.2% for the quarter and 37.3% organic. This shows nice progress, building on our over 25% organic growth in third quarter of 2011. Our total growth continues to benefit from the additions of Bloodhound and HRP in 2011. Our organic growth is also benefiting from our consolidated approach to selling our tools. We delivered about 20% organic growth for all of 2011. Our HRP revenue is weighted about 70% to the third and fourth quarters, as the season for Medicare Advantage reviews kicks in then. I would expect that the portion of health care revenue would be at lower levels in first and second quarter than in fourth-quarter, but at a higher level than the related period in 2010, prior to the acquisition.

Our specialized markets revenue grew 134% in fourth quarter, and 181.3% for the fiscal year 2011. Total revenue growth included the acquisition of 3E in December of 2010. Organic revenue growth declined 1.6% in the fourth quarter as a result of the GOES-R government contracts for weather analytics that began in 2010, and has reached its full quarterly value, as well as governmental budgetary delays in 2011. Organic revenue in this category grew 12.4% for the fiscal year 2011. We continue to look for ways to re-purpose our weather analytics into the insurance and supply chain markets, and are excited about the ability to continue to build on our capabilities at 3E to broaden our supply chain offerings.

Turning to risk assessment, we grew revenue 3.9% in the quarter and for the fiscal year 2011. Our industry-standard programs grew 4.9% in the quarter, a continued reflection of the value-based price increases in January of 2011, and the moderation of premium declines at our customers, as well as new customers in 2011. Our premium leakage solutions also continued to add to the growth. Our property-specific information revenues returned to modest growth of 0.5% in the quarter, as lower transaction volumes with certain customers were offset by increased use of property appraisal tools. About 85% of our revenue in risk assessment is based on subscriptions and long-term contracts, with 99% renewal rates recurring in fairly predictable revenue for a vast majority of the segment.

As we think towards 2012, we expect to see the benefit in risk assessment due to our new invoices, although premium growth remained negative in 2010, and we try hard to be sensitive to our customers, as well as to position ourselves for cross-sell opportunities. Overall, we are comfortable with how our enterprise will perform, even in the face of specific market issues for the mortgage business. Excluding the mortgage business, organic growth was 9.6% in the quarter and over 9% for the full year.

EBITDA for the fourth quarter was $158.4 million, and $592 million for the full year as outlined in table 3 of our press release. EBITDA increased 25% for the quarter, and our EBITDA margin was 45%. Our consolidated EBITDA margin increased in the fourth quarter, compared to 44.4% in the third quarter 2011. Excluding the impact of acquisitions, EBITDA margin was 46.6% in the quarter, and also excluding the benefit of the reduction in earn-out provision, 45.8% for the fiscal year 2011. In the quarter, our risk assessment margins were 51.4%, versus 51.3% in the fourth quarter 2010, and 50.5% in the third quarter of 2011. Our business continued to show scaled profitability, while we continued to invest in developing new solutions.

The margin in decision analytics was 40.7% in fourth quarter, versus 40.1% in third quarter 2011. Improvement in underlying margins of several of our businesses, as well as a mix shift to higher-margin solutions benefited us in the quarter, partially offset by the impact from the mortgage business. Our interest expense was flat in third quarter -- flat with third-quarter of 2011, as the increased interest associated with the bond offering in December was reflected in only part of the period, and was offset by decreased borrowings under our credit facility as a result of the refinance completed in early 4Q. Our $250 million bond was our second public bond issuance, and was closed on December 8 with a 4.875% coupon, and maturity of January 2019. With the bond proceeds, re-paid the entire outstanding, leaving $725 million available on our revolver. We continue to be opportunistic in the debt markets, and in 2011 created valuable committed debt capacity and public market access that can be used as a part of our strategic acquisition program.

We ended fourth quarter with total debt of $1.1 billion, and a debt-to-EBITDA ratio of 1.87 times, leaving us a bit below our target capital structure of 2 times. Our run rate interest expense for 2012, based upon our debt outstanding (inaudible - background noise), all of which was fixed rate, is approximately $65 million. Our reported effective tax rate was 35.5% for the quarter, down due to favorable audit settlements and resolutions, the continued execution of our tax planning strategies, and the benefits associated with R&D legislation. For the full year, our reported effective tax rate was 38.6%. For 2012, we're expecting a rate in line with our historical rate of approximately 40%.

Coming down to net income line, we 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 the income tax effect on that amortization. Our adjusted net income increased 22.2% to $85.5 million for the quarter, and grew 16.3% to $303.6 million for fiscal 2011. Adjusted EPS on a fully diluted basis was $0.50 for fourth quarter 2011, an increase of 28.2%. The average diluted share count was 170.5 million in the quarter, and on December 31, 2011, our diluted share count was 170.9 million shares.

In the quarter, we re-purchased 1.0 million shares for approximately $41 million. At quarter end, we had about $7 million left under our authorization. In January, we announced an additional $300 million to be added to that. In fiscal 2011, we re-purchased 11.3 million shares for a total purchase price of $381 million. Our approach to share re-purchases remains focused on limiting dilution, and only going beyond that when we believe the purchase will deliver appropriate economic returns, and not crowd out acquisitions. Our share re-purchase program has been successful to date, generating annualized IRRs of over 20%.

Turning to our balance sheet, as of December 31 our cash and cash equivalents were $192 million (inaudible - background noise) selecting the remaining proceeds from a bond offering in December that were not used to pay the bank debt. Total debt, both short-term and long-term totaled just north of $1.1 billion at December 31, up slightly from third-quarter 2011, as we funded share buy-backs largely with cash on hand and cash from operations. Our debt to EBITDA ratio was about 1.87 times at year-end, well within our covenants. Our debt capacity is about $675 million and will continue to grow as our free cash flow generation and as we add EBITDA of acquired companies. We intend to use somewhere between $70 million to $90 million of our cash on hand in the first half of 2012 to fund our pension plan above the required funding levels, to bring it closer to a fully funded status.

Free cash flow in 2011, which we define as cash from operations less capital expenditures, was $307.3 million, an increase of $12.3 million versus 2010. Free cash flow increased 4.2% in 2011, and the 11.8% increase in cash from operations was partially offset by increased capital expenditures, which totaled about $68.4 million for the year, including capital expenditures related to our acquisitions. Our capital expenditures were 5.1% of revenue as a result of the investments in a periodic upgrade to our computing environment, as well as continued investment in the business. We continued our strong free cash flow conversion of EBITDA, which was 52% in 2011. In our 10-K we stated that we expect capital expenditures to be approximately $75 million in 2012.

Overall, we had a good year, with strong growth in both revenue and earnings, reflecting both our discipline and execution on strategy. With that I will ask the operator to open the line for questions.

(Operator Instructions)

David Togut.

Can you quantify the price increase that you invoice to your customers in the risk assessment business in January of this year?

Well, I don't think we've typically provided that level of detail, but I think what we have always said is we want to try to put in place some type of inflationary type of increases. We think that's reflective of the value that we add, and in the sense that premiums which are a component of that invoice start to harden up, which remember our 2012 invoices are really reflective of 2010 premiums, is still a difficult time for our customers. That will add and certainly provide a little bit of a tail wind in the future, but that would be more into 2013 than 2012.

Do you have a specific expectation for direct-written premium growth for 2011 as a whole, and 2012, based on the trends you see at your customers?

We don't have a specific number expectation, though all the signals and information indicate that the soft market has bottomed out, and we're going to have a gradual increase in premiums going forward.

Can you be a little bit more granular about the underlying drivers of the accelerating growth within the healthcare vertical, and to what extent would these be sustainable in 2012?

Yes, there's a lot of different things that contribute. Some of the things that would sort of rise to the top would be, we have had a lot of success in selling new business, and that's both the acquisition of new customers, as well as the penetration of newer parts of our portfolio into existing customers. The cross-sell theme that we talk about a lot is at work in the health care business, as well as in insurance.

Then in addition to that, we've actually streamlined some of our processes, which have permitted us to actually accelerate the rate at which we implement. Some of what we do in health care is transactionally priced, and so getting the implementations ramping faster has benefited the revenue. There's no reason why our process will change, so I think that the efficiency of our implementations will stay high, and we still think we have a very large cross-sell opportunity in front of us in health care.

Scott, you highlighted $10 million of incremental investment for 2012. Can you give us a little bit more insight into potential operating leverage for 2012?

Well, we continue to do the things that basically have gotten our margins to the point that they are at right now. So the first thing is just to run the business with a great deal of discipline. I would say on top of that, a very powerful and a very long-term trend inside of our business is just the way in which costs related to computing storage and network are always moving in the right correction. We're always looking for opportunities to change our internal environment as it relates to automation. We're going to continue to do that. I don't think there are any new themes there. We are just going to continue to press them into our business.

Just a final question, if I might, for Mark. Could you talk about capital allocation priorities for 2012? You highlighted a $307 million left in your share re-purchase authorization. I mean, how do you compare value of your current stock versus acquisition in your pipeline?

Well, first of all, I think we tried to highlight that we did go to a larger organization in January that does not change our approach in any way. We remain committed to investing our business first and foremost. That is with either internal investment, which typically takes the form of expense inside of our P&L. Acquisition would be on top of that list. We have committed to buying back shares to limit dilution. To the extent that we have the ability to buy more, it's probably because we are trying to, for the most part, balance between acquisition and buy-backs. Our continued commitment is to make sure we deploy that in a disciplined way, and I think we've been successful in trying to make sure we think about it in the right economic way before we deploy capital.

Eric Boyer, Wells Fargo.

Margin question again. How should we think about the EBIT margin moving forward? The pace of acquisitions slowed in the back half of 2011, and you exited the end of the year at the top end of that longer-term guidance range. I guess the question is, will you manage the margins moving forward as the pace of acquisitions is slower, or re-invest to keep the margins in that longer-term range? Or could we see the margin moving up above it on an annual basis?

Let me start with that. I think the first answer to your question is, we're thinking about the long term, so we're going to make the right investment if we think we are going to be able to generate cash for our shareholders and grow the business in the long term. That's our foremost -- so managing margin is not something we think about day-to-day. We think about kind of finding the right investments and deploying capital the most effective way possible. That's a broad perspective. More specifically, we do think there's natural operating leverage inside the business. We would imagine that should scale and remain -- continue to scale, offset by some investment.

The other thing is a little bit of product mix shift. Obviously, the risk assessment business in some of the insurance-facing solutions have some nice margins, as did health care growth. There's a product shift there, a product mix shift there. We have good margins in health care, not as high as some of the health care -- some of the insurance facing. Then clearly, offsetting some of the margin expectations in the future is what's going to happen with mortgage. Those are a couple of the variables that we think about as we continue to hope to drive growth and cash flow into the future.

Along the same lines, you talked about the acquisitions that you did in 2010 and 2011 having an impact of 160 basis points. Where are you in the progression of improving those margins for those acquisitions? And how she we think about that impact in 2012?

Let me give you maybe at a high level, some of the numbers, and maybe Scott could talk integration, because I think that's a great theme. First of all, what we tried to highlight is because of the size of both 3E and Crowe Paradis back in December, we knew that it was going to hurt us to the tune of about 1.8%. Just because they were very profitable, it was just the margins were not as high as. We continue to believe and we've seen natural scale and operating leverage in each of those businesses. As you now look forward, I think we are on kind of a run rate that we don't have to worry about any adjustments, and each of those businesses in and of themselves do have natural scale to them. Scott, maybe--.

Yes, there's on top of that there's two themes with respect to integration. The near-term one is the less powerful one as it relates to near-term margins. But there is an effect there, and that is we've consolidated account management functions and selling across the different parts of Verisk Health, so we do get a little bit of efficiency there. Much more importantly, we're more coherent in front of the customers, and that's the primary reason we did it.

The longer-term drive to efficiency post-acquisition has to do with the creation of this unified platform that I mentioned earlier, which will allow us to essentially have one definition of data, regardless of which of our solutions we're talking about. The creation of our data assets, the warehousing of the data, and the use of the data inside of the analytic engines, all of that will respond positively and become more efficient as we get that put in place. I think I mentioned earlier that the creation of the unified platform is a 2012, 2013 initiative.

It is often the case when we do these acquisitions that we see opportunities to invest in these companies once we own them, for them to realize their full potential. It could take a while, depending on the particular acquisitions, to start achieving the scale that we see in the acquisition when we buy it.

Just finally on cash flow conversion. The year was below your usual range. You did some technology upgrades and CapEx related to the acquisitions. You talked about continued investment. Where do you expect that range to be for 2012?

Let me just give a little bit of a clarification, and I agree with your point. First is that from an operating cash flow perspective, we delivered about 12%, a little less than 12% from an operating cash flow. Remember the pension works against us. We've been funding the pension, and that increase probably hurt us, and if we back that out we'd be a little less than 14%. Going forward, I don't think we have anything that would proclude us from thinking differently about kind of that operating cash flow. I think what has happened, we gave you some guidance as to what we think CapEx will be in 2012, which was $75 million and that's in our K.

Other point I want to make as you think about all this, we have talked about funding some of the -- or, I guess accelerate funding -- some of the liabilities inside the pension. To the extent that we did that, it would be kind of a one-time hit to operating cash flow the way it works. Then that would be behind us. We think it's a thoughtful and good investment. That is the one exception there, one item I wanted just to call out for 2012.

Thanks a lot.

Bill Warmington, Raymond James

Good morning, and congratulations on a strong quarter.

Thank you.

It seems that insurance companies are becoming increasingly concerned about renewals and their property insurance books, because the market value is below replacement value for some of the properties, and the velocity that new sales is down so much. I wanted to ask how that -- what opportunity that presents for you guys?

Well, one of the opportunities it presents is that our 360 value tool -- the concern is getting insurance the value, which is totally different than market value. The use of our 360 value tool is very important and useful to these companies as they are trying to distinguish between those two issues and make sure that they're getting the proper -- what's called coverage A amounts. We think it just opens up an opportunity for us to further penetrate in that area.

Okay. Then Mark, you mentioned the guidance on the $75 million for CapEx for 2012. I just wanted to ask what you -- when you look at that as a percentage of revenue, what parameters you're thinking of? It's been moving up, and I wanted to know if that's a short-term phenomenon, or whether that's going to be kind of the level, about 5% of revenue going forward?

Well, I think what we have seen is in 2011, we did do some periodic upgrades to our computing platform, both here and in Salt Lake City area. Those were two items, I would guess primarily because of the volume in the growth in Xactware. That's probably ongoing. The Jersey City was periodic, which is kind of a one-time. Other point I'll make is Scott talked about the unified platform and some of the things we're doing to kind of bring these things together. To bring those things together, it does cost us some money. I think 2011 was yes, for the most part a little higher than the norm, and $75 million I think is more in line with just kind of moderate growth. I hope that's clear enough, but I'm just not going to comment at this point.

(laughter) All right. One more question for you is, I just wanted to ask how the M&A pipeline was looking? You guys have been sort of quiet in that front.

Quiet on, but perhaps quiet on final--.

On public, exactly, your public announcements.

Not quiet on our activity and evaluation of opportunities, and it's an ongoing process.

Okay, excellent. Thank you very much.

Andrew Jeffrey, SunTrust.

Hi, good morning. Nice quarter, guys. Health care within DA was clearly a bright spot in the second half of the year, and it seems like you reached a tipping point either in the delivery of your products, introduction of products, customer up-take, maybe some combination thereof. Can you just talk about sort of the steepness of the curve as we go into 2012, recognizing as you said, Mark, that it's kind of going to be more back-half weighted? Did we see sort of the kink in the curve in the second half of 2012, and we're at a sustain -- or 2011 -- and we're at a sustainable level? Or does the trajectory or the slope of that curve remain pretty steep as we go into 2012?

Let me open it and maybe I'll let Scott. Let's focus separate from the acquisition. Let's just focus on the organic growth.

Right, that's what I'm referring to in particular.

We've been talking about the fact that we were signing contracts, and now it was about implementation. We saw 25% organic growth in 2Q. We saw 30% organic growth in 4Q. It has been the implementation and sales that have been released. Now I would not keep that curve growing like you would, but I think it is sustainable and it's good news, just as a kind of an opening.

Right. Rate of customer adoption is something that we live and die with every day, and our customers are sophisticated and they go through long evaluations of our solutions. Sort of the context here is that if we were to fully penetrate our -- and we'll talk about this more at Investor Day. If we were to fully penetrate our existing customer base with all of the solutions that we've got in the health care universe, that represents multiples of our current run rate revenue. It's really on us to present our solutions and help the customers find the value and then be efficient in getting them implemented. In general, we're still essentially in the same position we were latter half of 2011 in terms of the amount of opportunity we've got relative to the book of business we've currently got.

Just to cap that point, the fact that we do add in the acquisitions, the HRP nature of the business is a little bit more back-end loaded. We talked about 70% of that revenue being more towards third and fourth quarter, as opposed to first and second. That's the next layer of health care modeling you may need to do. Just wanted to make sure we were clear there.

Right, that's helpful. Then with regard to the insurance solutions cross-sell where you're clearly also enjoying success, was there -- should we think about an acceleration in momentum in the back half? Or is that -- and something that can carry on into 2012? Or is that more of just a steady grind out the cross-sell and sustain above-average or above-Company-average organic revenue growth in DA, as a consequence? I'm just wondering if we reach a similar kind of tipping point in insurance or if that's less -- looks less like health care

I don't think we see it as a tipping point. There are good things happening inside of the business. We referenced earlier that the catastrophe modeling category has been performing strongly for us. In our view, that's basically the market responding to the depth and quality of the science that we've been bringing to this marketplace forever, basically. We've always felt that our science was distinctive. We seem to have come to a moment in the marketplace where the customers are even more aware of that, and maybe more weighting their buying decisions according to that.

Then we have referenced, we continue to reference the fact that some of what we do in the DA side of insurance is related to climate conditions. 2011 was pretty robust in terms of not mega catastrophes, but a lot of storm activity that just raised the demand for some of the estimating -- or estimatics that we provide. There were some factors that were at work in 2011, but we see a much more sort of -- we're building strength for the long term, and we think that the strength is being recognized. To call it a tipping point I think would over -- sort of overstate what happened in the latter half of 2011.

Okay. Let's not hope for too many mega catastrophes, right? Then one last one, if I might. Again, just to drill down to make sure I understand. In the DA margin, you have three quarters in a row north of 40%. Are the investments you're making in 2012, will they be expensed? Should we think about that 40% level as maybe the right long-term margin, but in the short-term look for it to potentially come down a little bit?

Let me take that for you. Two things. First of all, our investments, primarily in kind of focused on decision analytics, is in people. Sometimes it kind of gets into hardware and software, but for the most part it's people. A majority of that people cost is expensed inside of our P&L. There's a piece of that that you're already seeing in the margins, and as we continue to ramp that investment, yes, that will kind of have an offset. The other part of that is it's in CapEx. As you think about CapEx, you are seeing that number go up. That's capitalized in terms of developed software. I think in most of our businesses, you're going to see kind of a consistency to the margins offset by what is happening in mortgage, and probably some margin erosion there.

Okay. That's helpful, thanks.

Michael Meltz, JPMorgan

Thank you, three questions. Mark can you just tell us simply -- margin was 44.4% in 2011. Do expected it flat, up, or down in 2012, please? Then I have two follow-ups.

I think we feel that we are going to continue to drive strong margins. I think we feel that we are going to continue to drive earnings as we have, faster than top-line growth. All of that factors into how much investment and what kind of acquisitions happen. I think we're feeling comfortable where we are. I feel we have demonstrated some nice operating leverage and margin improvement over time. I think we're on path to continue to execute.

Then you grew -- organic growth was 7.6% in the second half and for the full-year. As you look to 2012, given all the moving pieces, how should we think about organic growth relative to that rate? I know there's only a tail of the acquisition, it's essentially all, or mostly organic, anyways.

Well, as I say, we don't typically give a lot of specificity. I think we fell good with our business. I think we think we are feeling good about the margin that we've -- excuse me, the organic growth that we've delivered over the course of the 2011. I think there's some strength there, offset by some unknowns with regard to mortgage. That's the one thing that probably is a little bit more difficult to predict.

And then on mortgage, are you at a point where mortgage -- or when do you get to a point where mortgage is evaluated as a divestiture candidate?

Well, our first priority in to take the fine assets that we've got and try to make them as market ready and valuable to our customers as we possibly can, and that's the focal point.

Yes, Michael, as we observed in some of our remarks, we are and have been working to maximize the capabilities we have within mortgage, not just for our mortgage customers, but for a broader section of the financial services industry. We think we've got valuable assets there that have potential.

Okay. Thank you for your time.

Suzi Stein, Morgan Stanley

In the specialized markets business you noted that government budget delays affected Q4. Should we expect that to reverse in Q1, or are the delays continuing?

Suzi, this is Mark. The budgetary delays, I think, have been generally worked out. It was kind of more of a towards the end of second quarter into third and then a little bit into October. I think we've worked through those now.

Okay. I know the risk assessment business is sensitive to the P&C cycle, but how sensitive is the insurance piece of decision analytics? Would you expect a substantial pick-up in new business as the cycle improves?

It's not as sensitive. The general climate of the industry certainly sort of conditions customers to -- in their willingness to make investments in new solutions. There's not the same direct linkage that there is into the pricing mechanism that's a part of risk assessment.

Okay. Then can you just address your plans for hiring in 2012?

Yes, kind of steady as she goes. Basically in line with the growth that we see in the business. We are pursuing the same business model, which is a highly leveraged approach where we're creating industry-standard solutions and selling them hopefully many many times. We're extremely alert to how much we're adding to our team, and the places where there will be growth will essentially be in line with where the growth in the revenue is going to occur, but there's nothing fundamentally changing inside of our business model.

Okay, thank you.

Kelly Flynn, Credit Suisse

Thanks for taking my question. I just have a couple. I'm just trying to figure out how optimistic we should be that risk assessment growth will accelerate in fiscal 2012 due to the improvements in P&C premiums? I recognize sort of your pricing changes, depending upon what goes on with premiums. If industry standard did 4.9% growth, which was pretty decent this quarter. What type of growth can the subscription portion of risk assessment put up in fiscal 2012 as it benefits from P&C premiums improving?

Let me first just make sure I remind everybody of the timing. I think what we started to see towards the end of 2010, but really in 2011, that's where some hardening of the market happens, as some prices started to increase, and hopefully premiums started to increase in 2011. Those 2011 changes won't affect us until 2013. There's basically a bit of a two-year lag. In 2010, industry premium was still negative. Better than, but still negative.

I think what we have always tried to do is try to keep things more moderated with regard to increases, because we are sensitive to customer needs. We also want to make sure that we are first and foremost they're thinking about us for buying other products. 2010 was not a great year from an industry standard and from a premium perspective in the industry. It will be really 2011 which will have kind of future benefits for us.

Okay, but I guess what I'm getting at is 5% growth for industry standard is pretty good growth, and it's not that different from your historical norm. As the market -- as you start to benefit from the hardening of the market, let's say potentially in fiscal 2013, do you expect that could be more like high single-digit growth, or will your pricing decisions offset that, and they'll continue to be mid-single?

I think historically our pricing decisions has moderated some of that.

Okay, that's fair. Then just a second question. I know Michael Meltz asked about organic growth for fiscal 2012, and you didn't get into a lot of detail. Last quarter you made a very helpful comment about Q4 organic growth expectations. I was wondering, can you at least talk about Q1 organic growth? If we ex out mortgage, do you think something similar to the 9.6% is what we should be thinking about? Or are there some incrementals that could weigh on growth a bit versus Q4?

Kelly, I would love to answer you question, but we really do try to think more long-term than we do next quarter. I think we feel good about where our business is. I think we feel that we have the right type of momentum. It's not that I am not answering, but I hope you respect that our view and our vantage point is let's really create some value long-term, and that's where we prefer to focus.

I would just add that in the external environment, there's nothing that's moving around that would cause us to think differently about our business or our opportunity.

Okay that's fair. Thanks a lot.

Robert Riggs, William Blair & Co.

Hi, thanks for taking my question. Just wanted to go back to Mark's comment about the international expansion. I know there's certain things you do for example like health care that are little tougher to translate in the international markets, but it would seem like supply chain would be something that on a global basis would fit pretty well. Is that kind of a key element of growing the international part of the business? Or are there other things that we should kind of keep an eye on?

That's a good question. Y0ou started out in the right place, also. Supply chain is just born as a global business. Even today, a fair fraction of what we do in the environmental health and safety space inside of the supply chain is non-domestic. We do have focus on that. We've made some changes in terms of our go-to-market strategy in Europe and Asia, in that part of our business. Yes, that is a focal point. It's hard work, but we're up for it.

There are two other parts of our business that I would point to. One is the catastrophe modeling discipline -- is also, by its very nature, global. One big customer set is the global re-insurers. They're thinking about perils anywhere that there are assets that are at risk. In fact, one of the things that we are working to do is to leverage some of the business development resources that have sort of grown up inside of our catastrophe business, but perhaps can represent other parts of our product mix.

Thirdly, while sort of the idiosyncratic nature of markets means that some of what we do doesn't trouble all that well across national boundaries, it's more the case that a claim is a claim. Some of our businesses which are claims oriented -- I think, for example, of the estimatics business -- we actually have planted the flag over in Europe, and we are looking for opportunities to spread that out. We have a lot of attention on it. I think that the amount of energy that we're going to put into it is probably going to exceed the rate at which it shows up in the P&L for some time. Because it's just that. It's a long development sort of an activity, but we are purposeful about the overseas markets.

Great. Then if I could just ask one quick follow-up on cross-sell and health care. Scott, in the past I think you've broken out the solutions across the buckets around population management, performance measurement, and then kind of compliance and payment integrity. I also know that you kind of compete with different players in each one of those buckets. As you get some scale and bulk up all three of those capabilities, do you get a competitive advantage by offering your clients kind of a comprehensive solution that will enable cross-sell? Are there other things as the unified platform -- is that kind of key to the cross-sell?

Yes, again a very fine question. Just a couple things. One is, each of the solutions needs to be excellent on its own, and we give that a lot of attention. The performance and the results that you're seeing are primarily a product of each of these solutions that's being on their own, highly valuable and very competitive against other offerings. That said, yes we do get advantage as we penetrate more broadly. I mentioned before, a unified account management approach, which definitely is meaningful in front of the largest accounts.

Again, I would point back to the unified platform, which we really do believe will make us unique in the sense that the vision is once you're using one of our products, since the underlying data infrastructure is common across all the solutions, it's relatively easy for a customer to then turn on to the next solution, and we do believe that that capability will make us unique. It's a great question. In the near term, yes, the whole is greater than the sum of the parts. I think particularly as it relates to facing off with the customers, and in the long-term, we can stream together more of the intellectual property assets to be flexible and more inventive.

Great thank you.

Kevin Mcveigh, Macquarie. Your line is open.

I apologize. I wondered if you could just give us a sense, with the economy firming a little bit, does it change kind of the multiples you're thinking about in terms of acquisitions? In terms of what people are looking for, versus what you're willing to pay, and how we should think about that on a go-forward basis?

Yes, it doesn't change our method for assessing acquisitions one bit. We're using exactly the same methodologies that we've used in the past. That's what we start with. We've mentioned in the past that we really are very disciplined on the acquisition side. The stream of opportunities that we assess versus the ones that we ultimately execute against is the first is much larger than the second, and that's always been the case.

In the current environment, I would say that probably marginally, sellers are a little more inclined to perhaps go into processes. But it's not really very different than it has been over the last several years. In any event, we're not referencing the macro environment when we're thinking about what it is that we're looking to do, which is derived from our strategy, or what we're willing to pay, which is really related to our valuation methodologies. None of the assumptions, none of the parameters inside of our models have changed, and I don't believe they will.

That's helpful. Is there a way to quantify what the impact of the acquisitions on an overall margin business will be in 2012, as we think--?

The ones that we've already done?

Yes.

I don't think you'll see, --comparing 2012 to 2011, I don't think there's any adjustment that need to be made. I think we just simply roll forward and we are normalized on a go-forward basis, if I'm answering your question properly.

Yes, thank you.

Bill Clark, KBW.

Hi there. The color on seasonality in HRP revenues was helpful. Just as far as an annual run rate, at the time of the acquisition you talked about a $15 million to $20 million number for that business in 2010. Could you just give an idea if we're still in that range, or it 2011 was significantly above that?

Well not substantially, but we did experience like we expected growth there. It was recently strong growth, nothing outrageous, and I think then take about 70% of that and allocate it towards the latter half of the year.

Okay great, thank you.

There are no further questions at this time.

All right. Thank you very much. I want to thank everyone for joining us today for our fourth quarter and fiscal year 2011 results. We appreciate your support and we look forward to seeing you at our Investor Day conference, or visiting with you again next quarter. Thank you and have a good day.

This concludes today's conference call. You may now disconnect.