Verisk Analytics Inc (VRSK) 2012 Q1 法說會逐字稿

Good morning, my name is Tequila, and I will be your conference operator today. At this time, I would like to welcome everyone to the Verisk Analytics first quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. Ms. Eva Huston, you may begin.

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

The earnings release referenced on this call as well as the associated 10-Q can be found on the website section of our website, verisk.com. The earnings release has also been attached to an 8-K that we have furnished to the SEC. A replay of this call will be posted on our website and available by dial-in as well for 30 days until June 2, 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. Information about the factors that could affect future performance is summarized at the end of our press release as well as contained in our recent SEC filings. With that, I will now turn the call over to Frank Coyne.

Thank you, Eva. Good morning. In first quarter 2012 we delivered good performance of almost 11% revenue growth, 17.5% diluted adjusted EPS growth, and strong free cash flow growth. We continue strong performance in our businesses and we are seeing benefits from our 2012 invoices in the improving performance of our PNC Insurance customers. In 2011PNC industry premiums grew 3.6% versus 0.5% in 2010. While the 2011 industry premiums don't figure into our invoices until 2013, we are happy our customers are doing better because that does represent new opportunities for us.

In the first quarter our risk assessment revenue grew 5.2% after adjusting for the impact of a transfer of some revenue to decision analytics, reflecting the continued value we are delivering to our customers. In Decision Analytics we grew revenue almost 17% and our Insurance Solutions and Decision Analytics grew about 11%. Our healthcare solutions continued on the growth trajectory we saw in the last half of 2011, growing revenue over 30% organically in the quarter. We also were pleased to have the MediConnect team join and look forward to their contributions in the future.

In mortgage, we continue to see challenges in the market and our revenue declined apples-to-apples. But I would note that we grew our underwriting solutions at a faster pace than the origination market grew. Overall, our consolidated organic revenue growth was 7.7%, consistent with the expectations we discussed with you last year as mortgage continues to weigh on growth. Excluding our historical mortgage business, organic revenue growth was 9%.

We continue to have conviction around our margin and overall profitability. Our EBITDA margin was 45.9% in the quarter and diluted adjusted EPS growth is 17.5% was also very strong. We remain disciplined about our use of capital and focused on delivering shareholder returns. We were pleased to acquire MediConnect this quarter and put about $350 million of that capital to work to generate returns. We also bought $39 million of shares in the quarter as we manage our buy back as part of our broader capital allocation plan, including acquisitions. We remain consistent in our approach to balancing uses of capital.

As I look towards the remainder of 2012 I am excited about all the verticals we face and the teams we have in place to deliver growth from our markets. Now, I will turn it over to Scott to talk about our progress against some of our operational goals.

Thank you, Frank. We have a number of things on our plate that we believe set us up for future growth, both from a sales and technology perspective. First on sales, we continue to ensure that we have the best teams facing our customers and we have made some new hires in that area. We are also ensuring that our holistic solution sets are being sold to decision makers. One of the powerful elements of our organization is solutions that can inter operate. Our competitors typically do not have this advantage. For example, our Verisk Insurance Solutions underwriting team has been in operation for a full quarter now and we are getting good feedback from customers on this approach.

On the technology side, we recognize the importance of technology and are continuing to invest behind our platforms, in particular to deliver better solutions to our customers. We have talked earlier about unified healthcare platform and we are on track for that to be completed in 2013 with a series of interim deliverables. As we mentioned when we talked to you about the MediConnect transaction, that acquisition does not impact this initiative. We have other investments including our next general platform for catastrophe models which many of you saw as a part of our investor day. And then we have a host of new claims tools, including mobile tools which can be used to settle claims via smartphones and tablets, while standing with a customer next to their damaged property. As well as aerial sketch which can be used to calculate the cost of repairing a roof without the time or hazard associated with having to climb on to the roof.

We remain focused on data and analytics and recognize that the way they are consumed is tied to evolving technology. The power of marrying our long history of data with forward-looking analytics via customer technology is unparalleled. And, with that, I will turn it over to Mark to talk about our corporate financial results.

Thank you, Scott. As Frank noted in the first quarter, we delivered 10.7% total revenue growth and 7.7% organic revenue growth and excluding our historical mortgage business, organic growth for the new quarter was 9%. For the first quarter, our decision analytic segment revenue continued to lead with 16.9% revenue growth of which 9.6% was organic and excludes 2011 acquisitions of Bloodhound and Health Risk Partners as well as the transferred revenue.

I want to remind you that beginning 2012 we have transferred revenue related to mortgage appraisal tools from Risk Assessment's property specific revenue category into Decision Analytics' mortgage revenue category to reflect a management reporting change. The appraisal tools related to the insurance customers will remain in the property specific underwriting category in risk assessment. Because the amount is small, $2.9 million of revenue in the quarter, we have not restated historical numbers but will provide you with an apples-to-apples comparison. As a final note, we closed the MediConnect deal on March 30, so second quarter 2012 will be the first time it's revenue and EBITDA will be reported in our financial results.

Within Decision Analytics, our insurance category revenue grew 10.5% in the quarter, all organic. We continue to benefit from the growth in our loss quantification claim tools, double digit growth from new customers and new solutions even after a year of almost 30% growth in 2011. Catastrophe modeling solutions continued good growth due to new customers and expanded use of our models including our catastrophe bond projects, an area in which our market share remains very strong.

Our insurance fraud claim solutions continued good growth in the quarter driven by 2012 invoices for certain solutions. The revenue in mortgage and financial services grew 4.8% as reported in the first quarter and declined 4.1% after adjusting for the transfer of the mortgage appraisal tools from risk assessment into this revenue category.

Underwriting tools grew in the quarter ahead of the approximate 5% growth in the origination market. The revenue from forensic solutions declined in the quarter as new customers and increased usage by existing customers were not sufficient is offset a large customer whose volumes have been trending down in 2011. Our outlook for 2012 for mortgage remains negative, as the current market makes it difficult to predict near-term trends for the majority of our solutions, but we have confidence in their long-term value.

Health care continues strong growth, 95% in the first quarter and 32.9% organic. Our total growth continues to benefit from the addition of Bloodhound, Health Risk Partners in 2012 and starting second quarter 2012 we'll benefit from the addition of MediConnect. Just a reminder for those of you looking at sequential revenue dollars, first and second quarter are seasonally lower revenue in margin quarters for our HRP businesses and MediConnect follows a similar seasonal pattern. We are 30 days into our ownership with MediConnect and excited about the prospects for the business.

Our specialized markets revenue grew 9.4% in the quarter from both our supply chain solutions as well as our weather analytics. Both of these areas are delivering solid growth today and we are optimistic about the opportunities to broaden their reach. Examples include repurchasing our weather analytics into the insurance market and building on our capabilities in conjunction with both internal and external tools to broaden our supply chain offerings.

Turning to risk assessment, we reported revenue of 3.1% in the quarter and 5.2% after adjusting for the impact of the transfer. Our industry-standard programs grew 6.8% in the quarter, reflecting our 2012 invoices and good growth from our premium leakage solutions. As you know, we put out new invoices in December and began recognizing the new level of revenue on January 1 and throughout the year. I will note that we had about $1 million of revenue in the quarter related to license fee which is nonrecurring. Our property-specific revenue, as reported, declined 5.6% but excluding the transfer grew 2.8% as new sales and higher volumes from certain customers offset declines.

While 2011 industry premium will not effect our invoices until 2013, as Frank noted, it is nice to see commercial premiums for 2011 were almost 4.4% to the positive versus a decline of 1.6% in 2010. EBITDA for the first quarter was $159.2 million as outlined in Table 3 of our press release. It increased 14.5% for the quarter and our EBITDA margins was 45.9%, an increase versus the 44.4% in first quarter 2011 and 45% in fourth quarter of 2011. It's nice to see the scale in the margins. Please remember as you model, that our invoice increases and risk assessment come through on January 1 but our annual salary increases come through in April. So, annual salary increases will be effective in the second quarter and increased corporate expenses by about $3.3 million per quarter beginning in the second quarter.

Additionally, we expect incremental costs of about $4.7 million second quarter related to our April 2012 equity [awards] primarily resulting from an accelerating vesting upon obtainment of eligible retirement age by some employees. About 70% or 75% of this option impact will be seen in risk investment. Finally, we do not anticipate much impact in 2012 margins resulting from the MediConnect acquisition. However, because of the seasonality of its revenue, MediConnect margins in the second quarter are lower that the full-year margins and we would expect to see an impact when the revenue and EBITDA are first reported next quarter.

In the quarter, our risk assessment margins were 55.1% versus 52.8% in the first quarter of 2011. We benefited by about 1.4% on the margins due to lower pension costs. On February 29 we froze our pension plan and in early April funded $72 million, bringing closer to fully funded which will limit the growth in that expense going forward. Our business continues to show scalable profitability while we continue to invest in developing new solutions.

The margin in Decision Analytics was 39.3% in the first quarter 2012 versus 37.7% in first quarter 2011 and 40.7% in fourth quarter of 2011. Improvement in the underlying margins of several of our businesses, including health care, as they scaled the revenue benefited us in the quarter, partially offset by the adverse impact from the mortgage business. We also capitalized a few dollars in this quarter, some relating to the technology initiatives that Scott had mentioned.

Our interest expense was up $1.6 million versus fourth quarter 2011 as the increased interest expense associated with our bond offering in December was fully reflected in the first quarter. We carried excess cash in most of the quarter from the bond offering and our free cash flow, but (inaudible) to fund part the MediConnect transaction bringing our cash balance closer to normal levels at $115 million at quarter end.

We ended first quarter with total debt of $1.2 billion including $125 million drawn for the MediConnect acquisition and a performance debt to EBITDA ratio of about 1.9 -- times. In early April we drew an additional $75 million for our pension funding leaving us at about our long-term target capital structure of 2 times debt to EBITDA on a pro forma basis. Our reported effective tax rate was 39.4% for the quarter. For 2012 we are expecting a rate in line with our historical rate of approximately 40%.

Coming down from net income line, we are focused on adjusted net income and non-cap measure which we defined (inaudible) net income plus acquisition related amortization expense less the income tax effect on that amortization. Our adjusted net income increased 12.4% to $79.8 million for the quarter and adjusted EPS on a fully diluted basis was $0.47, an increase of 17.5%. The average diluted share count was 171.4 million in the quarter and on March 31, 2012, our diluted share count was 171.9 million shares.

In the quarter we purchased about 900,000 shares for approximately $39 million. At quarter end we had about 268 million left under our authorization. Our approach to share repurchase remains focused on limiting dilution and going forward when we believe we can purchase, we can deliver appropriate RRRs and not crowd out our acquisitions. Our share repurchase program has been successful to date generating annualized RRRs over 25%.

Turning to the balance sheet. As of March 31, our cash and cash equivalents were about $115 million. Total debt both short-term and long-term totaled just north of $1.2 billion on March 31 reflecting the debt borrowed that funds the MediConnect closing on March 30 and was about $1.3 billion after our pension funding in early April. Post MediConnect and pension funding, our debt capacity is about $600 million. We continue to grow with free cash flow. As we stated before, we are willing to temporarily go above the long-term target of 2 times debt to EBITDA to take advantage of unique opportunity, particularly on the acquisition front. With that debt capacity available, we continue to look for the right opportunities.

Free cash flow in first quarter 2012, which we define as cash from operations less capital expenditures, was $173.7 million, an increase of $46.8 million or 36.9% first quarter of 2011. Free cash flow grew faster than EBITDA bolstered by the timing of cash interest payments on our bonds as well as certain customers paying invoices in first quarter this year, paid in second quarter last year. Our capital expenditures were 4.6% of revenue.

We continue our strong free cash flow conversion of EBITDA which was 109.1% in first quarter 2012 reflecting the typical first quarter pattern in which a good portion of our customers pay full year quarterly bill in advance. Overall, our business is performing well. We have a nice mix of growth from multiple verticals and continuing to invest in the future. With that, I will ask the operator to open up the line for questions. Thank you.

(Operator Instructions) Your first question comes from the lind of Eric Boyer with Wells Fargo.

The insurance vertical within your Decision Analytics business, I think it was the first quarter since you've been public where you didn't have quarter-over-quarter growth. Can you help us understand the dynamics going along within that segment and when you think the year-over-year organic growth rate should reaccelerate and the drivers of that?

This is Mark. I appreciate the question. A couple things to note. First of all, as you think about the verticals, a, relative to fourth quarter of 2011, severe storms and the seasonal weather patterns were pretty harsh in 2011. There was a lot of storm activity that did help us specifically on the claims side of things. We are kind of now in to a normal or lower time of year with regard to the storms and those claims that are associated with severe weather.

The other thing that typically happens at year end is, there is a, I will call it more of the one-time project type work that typically falls inside of our catastrophe modeling solutions and those projects which are usually completed for and focused on year end were also helping, and have historically helped the latter part of the year specifically for the quarter. Those are a couple of the dimensions that helped what is fourth quarter. I think we feel good about first quarter and where we were but to answer your specific question, it was a little bit of an umbrella over topic.

Okay. Great. I think you said you benefited in Risk Assessment, the revenue growth by $1 million for nonrecurring benefit. I didn't catch what that was from. Could you just go over that again?

Sure. Some of the insurance programs are licensed by vendors. So, they incorporate our programs in their solutions, their software solutions, as an example like Policy Admin Solutions, and we had, for the most part, a fee that was paid in first quarter that is a normal fee but it was, it's a nonrecurring type of item in the first quarter.

Okay. And just with the MediConnect, could you help us better understand the ramp there? Are we looking at more of a 30% first half, 70% back half for revenue and EBITDA? I think that's a good approximation. It's a little bit tough to have that level of visibility, but we continue to believe that's about right. Alright. Thanks a lot.

Your question comes from the line of [David Sogood with Avacore Partner].

Thank you. Good morning.

Good morning.

Frank, you highlighted a sharp acceleration in direct written premium growth at your PNC customers in 2011 that will impact your own risk assessment revenue growth in 2013. Given that acceleration and direct written premium growth, how are you thinking about pricing for 2013, and can you get in to the bottom of your long-term organic target range of 10% to 12% with that pick up and direct written premium?

Well, first on the pricing, we look a our pricing every year based on enhanced value that we bring to our customers plus their actual growth for the year that we have in reports that they submit. It's too early for me to really opine on what our pricing might be for 2013 but, as you saw -- on the second part of your question, we are optimistic because we have had that wind at our face now for a few years and now it's turning. So, it certainly gives us more flexibility.

On the second part of your question, I'm pleased that ex-mortgage we had a 9% organic revenue growth for the quarter and that's a good sign. I like the assets that we have and I like the potential we have for organic growth going forward. We still hold on to our aspirational targets.

Well, put another way, is this any reason to believe that you wouldn't have CPI-type pricing in 2013 in the Risk Assessment business?

As I said, I really it would be premature to talk about pricing, but that's a reasonable assumption.

Okay. Thank you very much.

You're welcome.

Your next question comes from the line of Bill Warmington with Raymond James.

Good morning, everyone.

Good morning.

A couple of questions for you. The first is, in 2010 and 2011 the second quarter adjusted EBITDA margin was the trough for the year and then third and forth quarter margins were at or above the first quarter margin levels. Would it be reasonable to assume that pattern repeats in 2012?

Thank you. Let me just kind of recap a little bit what we were trying to get to. There are two things that affect us in the second quarter. First of all, relative to first we do have salary increases coming through. Those salary increases, as I mentioned, is about $3.3 million. That's an item that will continue obviously in to second, third and fourth. So, that's something you'll have to kind of model through the year.

The equity awards that were just granted in April, because of the nature of accelerated vesting on retirement age, that does cause a bit of a one-time item that affects second quarter. So, A, the 2012 equity awards are bigger than the 2009 that are kind of rolling off and these will roll in. We talked about the 4.7, but a good majority of that 4.7 relates to this accelerated vesting. That item will affect second quarter and then it would go away for third and fourth very similar to last year. So to your point, those are a couple of dimensions along with the MediConnect that I mentioned that should probably cause a little bit of a trough in the second quarter as you noted.

Got you. Okay. Another question for you. You've had very impressive growth in the Xactware segment in 2011, over 20%, and it's still delivering strong growth against that. Can you talk a little bit about the new product and new customers in that segment that you are targeting and what kind of growth you think you can deliver from the 10% level?

This is Scott, Bill. There is quite a few things we are doing on the Xactware front. A few that rise to the top of the level would be, we are very excited about the content side of the business. You may know that Xactware historically has been about estimating the value of the structure, but something on the order of 40% of the value overall is in the contents. The use of automated tools for estimating contents really has not emerged yet fully in the same way it has on the structural side. So we are very excited about that.

A second thing is, the business is finding its way in to overseas markets. We sort of have our launching pad in to continental Europe, pretty well established now in the UK and via existing customer relationships we are actually reaching over there, and it is going to be a long march but we are encouraged by what we are seeing.

A third thing is the tools that we use on the insurance side are also useful in the REO market, where the property owner has to keep track of what it costs to maintain a property that's moved in to REO status, and so we have actually just introduced a line of solutions aimed at that marketplace and, again, it's kind of early days, but we are encouraged about that. I think you know that kind of the syncopation inside of the business today is our tools are now being used for the adjusting of well over 80% of residential claims.

On the underwriting side for ITV calculations, our share is not that high but it continues to go up and carriers find it very compelling to think about using the same analytic engine and the same data set for both underwriting the policy on the front end and adjusting the claims on the back end. So, we find that the market continues to come to us on that approach.

So, a variety of things that are at work inside of the Business. We do remain optimistic about the growth potential for the business over longer periods of time. There were some exciting things that happened in 2011 that contributed to that 30% plus growth rate, some very large customers coming over in to our column. So, there was something a little bit extraordinary about 2011, but we do remain very optimistic about the Business.

Excellent. Thank you for the insight.

You're welcome.

Your next question comes from the line of Kevin McVeigh with Macquarie.

Thank you. I wonder if you can give a sense of how much acquisitions have impacted the margins in Q1?

I will tell you we have not spent a lot of time on it because I don't think there was much of an impact. Now, remember, we have always been talking about the acquisitions of Proparity and 3E because they were purchased in December of 2010, so now as we roll forward 1Q '12, 1Q '11 we have an apples-to-apples, and the combination of newer acquisition, MediConnect and HRP are not really affecting the margins to too big a degree.

I think in Decision Analytics it's about 60 basis points.

Yes, in just DA.

Great. Thank you. And then just as kind of the PNC market starts to firm a little bit. Does that impact the selling process at all, in terms of type of product your clients are looking at, and just kind of any derivative impact on the business from that?

Yes, it does. It frees up opportunities for our customers to look at additional products of ours that they have an interest in but didn't have budget for. And the selling cycle shortens somewhat when our customers are growing.

Great. Thank you.

Your next question comes from the line of Robert Riggs with William Blair.

Good morning. Thanks for taking my question. Kind of an extension off of the last line of questioning. You've highlighted roughly a $1 billion opportunity, additional opportunity in the PNC space. What are going to be the key drivers to seizing on that opportunity? Have you made any adjustments in terms of your sales force, and in terms of driving that cross sell? Where are you doing -- feel like you are doing a good job of pursuing that? And where is there still some work to be done? Thanks.

Yes. Thank you. That's something we spend a lot of time on. One thing I would point you to is you may have noticed last year we reorganized some of our PNC assets. We pulled assets from actually five different operating units to create Verisk Underwriting. Part of the purpose of doing that is to present a more unified, coherent face to our customers in the Underwriting space. If you look at our position in the PNC marketplace overall, and you think about the different disciplines that are at work there, we are very, very strong with respect to rate-making and all of the associated process that goes on in front of the regulators. We are very strong in the claims function, we are very strong in catastrophe modeling.

In the underwriting discipline, we are a presence, but the relative strength of our competitive position is not as great. So, one of the things we are emphasizing is just that. So, the reorganization, the naming of a talented executive to run that business for us, all of that really reflects our ambition to become bigger, stronger in the underwriting function. And it's early days, but we do think this new approach is beginning to yield what we were hoping it would.

Another comment would be that we are just very focused on the cross selling opportunity, and so we've done what we have done for some time, and that is to really make sure that account management is a very strong function for us and basically representing the full range of solutions that we have for our carrier customers.

Those are the kinds of things that we do. The reorganization was, obviously, a point in time thing. A lot of it is just this long, steady approach presenting all of our capabilities to the customer base and being a good partner.

Great, thank you.

Your next question comes from the line of Suzie Stein with Morgan Stanley.

Hi. The pro forma financials with MediConnect imply that the revenue growth in Q1 was about 67%. Is there anything unusual there that would cause it to be so high? And should we expect this rate of growth for the rest of the year?

Suzi, this is Mark. I appreciate the question. First quarter, as we said, there is a little bit of seasonality to it. When we talk about seasonality at year-end, year-end also kind of rolls in to January so there is positive wind that flows through. I think that we are still comfortable with the discussion we had. I don't know if we have any optimism about second quarter, or view too much in to what we saw in the first quarter. Hopefully it is a little bit of a positive. I would not change anything we described relative to the MediConnect call, where we talked about growth consistent with what we see in the past.

Okay. The organic growth rate in Specialized Markets has been very volatile. What do you think is a normalized growth rate for that business?

Well, let me just describe, last year what we did run into inside of the Specialized was government and budgetary constraints that caused a little bit of a downturn towards the end of the year as government kind of shut down for a piece. The other thing I will remind you is that we won a very sizeable contract. (inaudible) contract, satellite imaging associated with (inaudible) data there.

So, we had that growing very quickly until we got to the point where we had this grow-over on that contract. So, you saw last year towards the quarter the fact that the contract hit kind of (inaudible) course through a full year. I think what you are seeing now in first quarter feels like a reasonable growth rate. I think we kind of, I don't want to call it normalized, but I think we found some consistency.

The Climate Science part of our Business is actually starting to find a little bit more traction in the commercial markets, which should, over time, both get bigger as a percentage of the total and be somewhat steadier with respect to the revenue profile.

Okay. And then just one final question on the Mortgage business. What are you expecting as far as declines for the rest of the year? And how far along is the customer that you singled out, just in terms of winding down the business?

So, let me describe, I think what we said during the year-end call is that we can see the Mortgage business declining similar to what we saw the in the fourth quarter which was a 7% decline. We said we could see the negative aspects throughout the market being to that level throughout the course of '12.

And to your point, what we're seeing is our Business on the front end, this would relate to the underwriting side of things, growing faster, (inaudible) build on to the customers and that is growing faster than mortgage origination bonds as a whole but, unfortunately, the one customer trending down is more than offsetting some of that good news that we are seeing on existing customers. So, we think we are well-positioned. I think we remain very optimistic for the future because we are improving our position inside the market, but it's a challenging one at this point.

Just to clarify, on the customer that's trending down, are you kind of getting close to the tail end of that? Or will that continue for the foreseeable future?

It's going to continue through third quarter.

Okay. Great. Thank you.

Your next question comes from the line of Jennifer Huang with UBS.

Thank you. Maybe talk a little bit more about the Health Care business. The growth was obviously very strong there. I was just wondering, how much of that do you think may be attributable to your efforts to integrate the healthcare platform into just one? And then maybe as a followup, I think you guys had mentioned investments in the integration process of about $10 million over the course of two years? Maybe you can quantify how much of that you saw in the first quarter, or how much of that impacted EBITDA margins?

Yes, let me take the first part of that, this is Scott, as it relates to healthcare. We are work hard on integration. I would like everybody to understand there are actually two different forms of integration that are now at work inside of what we are doing in healthcare. The first is we are trying to unify the data analytic platform off of which the individual solutions are built. That has to do with coming up with normalized data models and creating a data warehouse structure that can serve all of the different aspects of what we do whether it's trying to add value to claims or it's trying to engage in risk adjusting, et cetera.

So, that's one thing which is on going. I mentioned earlier that that's a project which continues through 2013. That will hopefully, it should, and we plan for it to work to the benefit of all of the different sets of solutions that we provide in to the marketplace.

There is a second integration which we are now undertaking which is related to the MediConnect acquisition. And basically there is, and we are going to feature in the way that we operate, a strong linkage between three things that we do. One is chart retrieval and abstraction, which is what MediConnect does. HEDIS reporting, which we already do, and risk adjusting on behalf of plans that are seeking Medicare reimbursements. Those three businesses actually have a lot of -- logically relate strongly one to the other.

So, we are at work even now to try to pull those operationally together so that we can present yet more integrated and streamlined solutions to our customers. I guess what I want to emphasize with respect to results is that we are just in the process of integrating right now. So, I would not really attribute anything in our first-quarter 2012 Healthcare results to the integration work that we're doing.

On your second question, which is the investing we are doing to achieve these new platforms, there is actually two major streams of investment which are going on. One is the unified platform in healthcare and the other is the next generation platform supporting our catastrophe models, and that's the number that you heard us reference before. It's not all just in Healthcare.

Okay. Great. Thanks.

Your next question comes from the line of James Friedman with SIG.

Hi. Thanks for taking my question. Mark, the cash flow from operations was up almost, or above, 30% year-over-year. It seemed like some of that was related to a reduction in working capital. I was wondering how sustainable that is?

Sure. Thanks for the question. We did have a very good first quarter. Two things, or a few things, that factored in to it. First of all, let me remind you in first quarter of last year we talked about a refresh of our technology environment here in Jersey City. That was a little bit of a periodic thing. We have a drop in CapEx in first quarter '12 relative to '11, so that helped us.

The other things that we highlight, or want to highlight is that the semiannual aspect of bond interest did not run through the P&L in the first quarter, so that helped us, it will kind of catch up in second quarter. That's about, I think, $6 million. The rest of it, I will call out maybe about $7 million or $8 million, we can point to customers who seem to be paying in first quarter this year and paid maybe in second quarter last year. When I normalize all that, I think we are still seeing free cash flow going about 20%, which is very strong, very positive.

Seeing we have everyone on the call, I do want to remind you that second quarter we did make this $72 million funding of the pension, so that $72 million will have to just normalize next quarter. That will be considered an operating cash flow and reduce it. The underlying trend and underlying theme seem quite positive. We are pleased with the first quarter results there.

Okay, thank you. And then, Scott, just for clarification attribution perspective, the HEDIS reporting, the charting and risk adjustment solutions that you described earlier, how are those going to be categorized between analytics and assessment?

Well, we are going to have to look at that. I think that structure needs to follow function, and I don't know that we've actually sorted that out. I mean, the HEDIS is inside of Enterprise Analytics today. This is our own structure. And then the other piece, the Medicare is revenue integrity. We are working first on the organizational integration of those. So, we will see.

Okay. Thanks for taking my question.

You're welcome.

There are no further questions at this time.

Alright. Well, thank you for joining us on our first quarter results. We look forward to speaking with you again, and we continue to thank you for your support.

Thank you. This does conclude today's conference call. You may now disconnect.