Verisk Analytics Inc (VRSK) 2012 Q3 法說會逐字稿

Good morning. My name is Brandy and I will be your conference operator today. At this time, I would like to welcome everyone to the Verisk Analytics third-quarter 2012 earnings results 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). As a reminder, today's call is being recorded. Thank you. Ms. Eva Huston, Treasurer and Head of Investor Relations, you may begin.

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

The earnings release referenced on this call, as well as the associated 10-K, were provided on Tuesday and can be found in the Investor section of our website, Verisk.com. The earnings release has also been attached to an 8-K that we've furnished to the SEC. A replay of this call will be available for 30 days on our website and buy dial-in.

Finally, as set forth in more detail in today's earnings release, I will remind everyone that today's call may include forward-looking statements about Verisk's future performance. Actual performance could differ materially from what is suggested by our comments today. Information about the factors that could affect future performance is summarized at the end of our press release, as well as contained in our recent SEC filings. And with that, I will now turn the call over to Frank Coyne.

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

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

In the third quarter, our Risk Assessment revenue grew 4.9% after adjusting for the impact of a transfer of some revenue to Decision Analytics in 2012. This growth is a continuation of what you saw in the first half and evidence of our strong subscription model.

In Decision Analytics, our revenue grew almost 30% and our Insurance Solutions grew about 9% even while we continued to face tough comps with regards to storm activity in 2011. While we certainly will see claims coming through from Hurricane Sandy, much of our claims volume revenue is contracted above current volumes and we will still experience tough comps versus fourth quarter 2011.

Our healthcare solutions continued on the excellent organic growth path we have seen in the past few quarters, growing revenue about 47% organically in the quarter. Total healthcare revenue grew; growth was almost 130%, bolstered by the contributions MediConnect continues to make.

In the quarter, we generated almost $70 million in revenue from our healthcare business. Compared to 3Q 2009, our first quarter reporting after our IPO, our reported healthcare revenue increased by fivefold in just three years, making it a meaningful part of our enterprise.

In Mortgage and Financial Services, we were pleased to have closed our acquisition of Argus and in the first month since closing, performance has been on target and our future expectations have been reconfirmed.

With our Mortgage tools, we are seeing recent trends continuing. Our origination-related revenue continues to grow in line with the market, while our overall Mortgage revenue declined due to lower volumes of forensic review.

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

As we have previously communicated, we moderated our share repurchase in the quarter to about $21 million. We continue to be active in looking at M&A, but also continue to maintain our discipline, focusing on assets with a true strategic fit, a strong financial model, and an appropriate valuation in relation to future growth.

We also remain focused on meeting our commitments to our debtholders as it relates to delevering back to our target ratios. In this quarter, we had strong financial results and behind the numbers are many initiatives that we expect to bear fruit in the future. The creativity and deep domain expertise of our teams is evident as we discuss our near-term and long-term objectives. And with our diversified portfolio, we have the ability to weather global uncertainty while continuing to build a stronger Verisk.

Now I will turn it over to Scott to give you details about our progress in healthcare and other parts of the business.

Thank you, Frank. We have a lot of exciting initiatives going on at Verisk and I wanted to share a few with you to give you a sense of our current customer interactions, as well as some emerging opportunities that are not yet reflected in our numbers.

First, our teams at AIR and AER have been working around the clock to provide real-time updates to their forecasts on the path and impact of Hurricane Sandy. These estimates are vital to our customers as they help them to understand what to expect in what will likely be a major impact on their business and operations. While our teams may be operating remotely, they are in constant communication with customers about this storm. It is events like this that highlight our importance to our customers.

Now to talk about the value we bring away from the storm, our healthcare business is performing very well and also executing on its plans for the future. We continue to make progress on our unified healthcare platform and it is proceeding as expected. We talked about having a new customer live and on the fraud platform last quarter and more recently, we expect to use the combined fraud platform to bring large corporate customers' healthcare claims together to allow them to see aggregate spend across employees and coverage limits in the fourth quarter of this year. We estimate that our tool could save them substantial dollars and have a very strong ROI.

We are also making excellent progress in bringing together our MediConnect business with our Revenue Integrity platform. A lot of this work is operational and involves ensuring that we work together seamlessly both on the sales front and also on the customer delivery front. We are finding the teams energized by working together, as well as being a part of the bigger Verisk health platform and mission. As well, we continue to see the combination of our solutions and teams resonating with customers through new sales and improving product pipelines.

We also continue to work to find ways to use our numerous capabilities and data sets across multiple functions, verticals or geographies. The aggregated medical database for P&C insurers for healthcare claims is running well and bringing significant value to our customers. We are also continuing our development of the next-generation platform for our catastrophe models and we expect to launch to customers in 2013.

We are also using our weather data for P&C companies and continue to make traction in that space and with the addition of Argus, we have spent time during the first 60 days holding brainstorming sessions between the Argus team and existing Verisk businesses. These sessions are leading to discoveries around how we can repurpose the data models built by Argus to deliver solutions to other customers, including in the insurance space.

Internationally, we are working on translating our substantial intellectual property into new markets where no or limited analytics exist today. This is a long-term project, but the reception we are finding so far is very encouraging.

All of what we are doing is about creating innovation within our Company as that will permit us to reimagine and enlarge our markets. We must continue to know both our current customer value propositions, as well as relate to our customers as development partners and we are committed to both.

With that, let me turn it over to Mark to cover our financial results.

Thanks, Scott. You have heard some of the exciting things that are going on in our business and I will share some of the numbers as a result of these efforts. In the third quarter, we delivered 17.3% total revenue growth and 8.5% organic revenue growth. Excluding our historical Mortgage business, organic growth for the quarter was 10.8%.

For the third quarter, our Decision Analytics segment revenue continued to lead with 27.4% growth, of which 11% was organic, excluding the acquisitions of MediConnect, Aspect Loss Prevention and Argus, as well as the transfer of revenue for the Mortgage appraisal tools. As a reminder, in 2012, we transferred revenue related to the Mortgage appraisal tools from Risk Assessment's property-specific revenue category into Decision Analytics Mortgage and Financial Services revenue category. We will continue to provide you visibility into the apples-to-apples comparisons throughout 2012.

Within Decision Analytics, our insurance category grew 8.6% in the third quarter and 8.3% organically. Excluding the July acquisition of Aspect Loss Prevention, we continued strong double-digit growth in our catastrophe modeling solutions. We also saw improved growth in our loss quantification solutions despite continued lower levels of storm activity in 2012 versus the same period in 2011.

I know you have a question on the impact of Sandy on our volumes through XactAnalysis. As you may remember, our multiyear customer contracts include an annual base number of claims to be processed that varies by client. To give you a sense, we were tracking below the contracted amounts of claims year-to-date, so we don't expect to see the transactional bump we saw last year when clients went into overages. For 2012, we have approximately 20% more claims volumes under contract than in 2011, so we are not currently forecasting overages. Also, in the quarter, Claims Solutions delivered good growth.

In Mortgage and Financial Services, we grew 10.8% reflecting the addition of Argus as of August 31. Argus is an excellent business and we are pleased with the performance to date and continue to see opportunity, at least as large as we initially anticipated. After adjusting for the acquisition of Argus and the transfer of the Mortgage appraisal tools from Risk Assessment into this revenue category in the third quarter, revenues declined 11.9%.

We continue to see the same themes that we have been discussing in previous quarters. Underwriting tools grew nicely in the quarter and reflected the growth in the Mortgage applications in the market. But revenue from Forensic Solutions declined in the quarter, more than offsetting that growth.

To provide additional clarity on these trends, a quick reminder about the shape of our business. Broadly speaking, there two types, two parts of the Mortgage business. What we call the front end, the part that are related to originations and refinancing is about half of the Mortgage business and is performing well. The other part is what we call the forensic piece. That is about half the business and about 4% of consolidated revenue in the quarter.

The Forensic business benefited from the surge in demand in the wake of the financial crisis. That demand is now subsiding. To frame the potential downside for you, before the crisis, the Forensic business was about $10 million on an annual basis with business primarily from one of our two large current customers. We are now in the process of reverting to historic levels. However, because our customers remained somewhat uncertain about where their needs will stabilize, it is harder for us to get the kind of forward visibility into our Mortgage revenue that characterizes most of our businesses.

Based upon our latest review of the Mortgage business, our current expectation is that there is more revenue likely to roll off as a part of this normalization process, including in the fourth quarter 2012. We had projected in early 2012 that our Mortgage revenue in aggregate for the year would decline similar to the fourth quarter 2010 or about 7%. Our current revenue expectation for the fourth quarter now leads us to believe the decline for the full year 2012 will be in the 12% to 15% range. The EBITDA margins in this business are below the segment average, so there is less of an impact on the bottom line than top line. Now, of course, we aren't standing still. We continue to develop new solutions that bring value to our customers and those opportunities will create new revenue streams in that Forensic space.

Healthcare continues strong revenue growth, 129% for the third quarter and 47.4% organic. Healthcare organic growth year-to-date is 41%. Our total growth benefited from the second-quarter addition of MediConnect. Organically, we continue to add and implement new customers and expand our relationships with existing customers. Both the acquisitions of Bloodhound and Health Risk Partners became a part of the organic growth calculation in this quarter and have added to our organic growth. Although all of the businesses are growing nicely.

As a reminder, we do have seasonality in our Revenue Integrity and MediConnect businesses related to the CMS review cycle and the revenue between third quarter and fourth quarter can be a bit fluid depending on customer schedules. While I expect to see strong continued growth year-over-year next quarter, we may see a modest sequential dip in dollar revenue. Our specialized markets grew 11% in third quarter with growth both from the supply chain solutions, as well as Weather Analytics.

Turning to Risk Assessment, we reported revenue growth of 2.8% in the quarter and 4.9% after adjusting for the impact of the transfer we discussed earlier. Our Industry Standard Programs grew 5.8% in the quarter, reflecting our 2012 invoices and strong growth from our premium leakage solutions. Our property-specific revenue declined 5.1% as reported, but, excluding the transfer, grew 4% based upon new sales and higher volumes, as well as growth in appraisal solutions.

EBITDA for the third quarter was $182.9 million as outlined in Table 3 of our press release. EBIT increased 21.1% for the quarter and our EBITDA margin was 45.9%, reflecting good expense management, as well as the seasonal benefit of some of our healthcare businesses. We continue to see opportunities for investing in future growth and as you remember, those can have a near-term impact on margins, but grow our future opportunity.

In the quarter, the Risk Assessment margins were 54.6% versus 50.5% in the third quarter of 2011. We benefited by about 2% on the margin due to the lower pension costs related to the freeze of the plan in February. Our business continues to show scalable profitability, but we also continue to invest in developing new solutions.

Margins in Decision Analytics was 40.9% in the third quarter of 2012 versus 40.1% in third quarter of 2011. Our acquisitions of MediConnect and Argus added slightly to our margins.

Our interest expense was up $3.5 million versus third quarter 2011 based upon higher debt balances related to our acquisitions. We ended third quarter with total debt of $1.6 billion, including the $380 million to fund the Argus acquisition on August 31. Our reported effective tax rate was 39.3% for the quarter, which we expect to continue for the rest of 2012.

Coming down to net income, we focus 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 tax effect on that amortization. Our adjusted net income increased 20.9% to $92.2 million for the quarter. Adjusted EPS on a fully diluted basis was $0.54, an increase of 20%, a great growth rate. The average diluted share count was 171.7 million shares in the quarter. On September 30, 2012, our diluted share count was 171.5 million shares.

In the quarter, we purchased 425,000 shares for about $21 million. At quarter-end, we had about 179 million left under our authorization. As we discussed last quarter, we have moderated our buyback program after acquiring Argus to ensure that we meet our deleveraging commitments. Our share repurchase program has been successful to date generating annualized IRRs of over 25%.

Turning to the balance sheet, as of September 30, our cash and cash equivalents were $98 million. Total debt, both short term and long term, totaled about $1.6 billion reflecting the borrowed funds to acquire Argus, which closed on August 31. Post-Argus, our debt capacity is over $850 million and will grow with our EBITDA and free cash flow. Our pro forma debt to EBITDA ratio at September 30, including a full year of historical results for both MediConnect and Argus, was 2.2 times, down from the pro forma ratio of 2.35 times we cited at the time of the acquisition.

As we have stated before, we are willing to temporarily go above our long-term target of 2 times debt to EBITDA to take advantage of the unique opportunity because our free cash flow is strong and allows us to delever quickly.

Free cash flow in the first nine months of 2012, which we define as cash from operations less capital expenditures, was $264.2 million, a decrease of about $11.3 million, or negative 4.1% versus the nine months of 2011. This decline was principally due to the funding of our pension, which we have mentioned previously. Excluding the impact of our pension net of the tax benefit and certain year-over-year timing issues, our free cash flow was up about 16%.

Capital expenditures was about 5.1% of revenue for the nine months ended September 30, 2012. Free cash flow represented 52.2% of EBITDA in the first nine months of 2012 reflecting a reduced conversion rate due to the $72 million pension funding, partially offset by the associated tax benefit.

As we have indicated previously, we moderated our share buyback program as we delever following the solid acquisitions we made this year. We would anticipate that the share count in 4Q may be up about 1%. Overall, our business is performing very well and we have a nice mix of growth from multiple verticals and continue to invest in the future. We see that both our subscription and transaction revenues growing well. Even with our transaction revenue, while we see some variations around that revenue, the purchase of our solutions is largely nondiscretionary and therefore we have good visibility into the future.

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

(Operator Instructions). Eric Boyer, Wells Fargo.

Great, thanks a lot. Hey, Mark, with the guidance you gave about the sequential dip in Healthcare revenue in absolute dollar terms for Q4, I just want to make sure I am thinking about this right. Would that assume a year-over-year growth rate in the single digits to maybe the low to mid teens?

Well, I mean I don't want to get into very specifics. I think what we are trying to describe is we see very strong growth for Healthcare both in aggregate and organically in fourth quarter. But when you consider seasonality and if you actually look at the absolute dollars in third quarter relative to fourth quarter, we are just talking about what we see from an absolute dollar amount 4Q relative to 3Q.

Okay. And then starting again next year, and then '13, would you expect the growth rate to re-accelerate then?

Well, we have high hopes and we continue to be very bullish on the prospects for healthcare. So I think we feel good about healthcare. We continue to just describe it is a growing business. We expect growth, but, over time, the law of large numbers takes over, so we would expect that it is going to continue to grow, but at percent levels of today I think will be diminishing over time.

Okay, just one more on Healthcare. In the past, you talked about being in the early innings in terms of completing implementations and then being able to recognize the revenue. Are we still in the early innings there and then how is the pace of new integration startups going?

So let me take the beginning of that and then maybe I can ask Scott to comment on it. So the first thing that we are seeing is, A, from a backend perspective or a fraud perspective, we are implementing the customers. You are seeing that in the revenue now and we have a very good and improved process around implementing customers. So there is a combination of, A, existing customers rolling out more regions and states. That is good, that is in and that continues. At the same time, we have signed new customers and that does take a little time to ramp up and that will have kind of more of a tail to it into 2013.

That is particularly true on the front end. When we sell a customer on the front end, we do require information and data from them and then we turn around some of the models and there is a little bit of a deferral until we are able to deliver the product to those customers. So that is also kind of a deferral of sorts from revenue rec. But I think you see the trend and you can see the opportunity as both the pipeline and new customers come to fruition are implemented. Scott, maybe you can comment a little more on the progress.

Well, I think you said it well. I would just add that this effect of catching up with respect to implementations is particularly felt in our payment accuracy business and we are certainly not complete in that process, but we do continue to make progress, as Mark said and I would just say that you have to account for the fact that our mix is shifting a little bit also and all of what we do that we call Revenue Integrity is just becoming a more and more important fraction of the total of what we do in the healthcare space. So you do have a mix effect in there as well.

Okay, thanks a lot.

Hey, Eric, it's Eva. I just wanted to add one clarifying point on Healthcare. Fourth-quarter 2011 Healthcare revenue was $38 million and this quarter, we did $69 million.

And you did have a question on how the integration is going and we are very pleased with our progress there and the synergies of the business are really showing in enhanced opportunities in the marketplace.

David Togut, Evergreen Partners.

Thank you. Evercore Partners. Scott, could you provide a little bit more granular insight into the underlying drivers of the 47% organic revenue growth in Healthcare? And to what extent is superior growth sustainable in this business? Perhaps not at the 47% level, but if you could perhaps take us out into 2013 and talk about how some of those growth drivers might play out.

Yes, happy to. First of all, I think everybody is aware, but I will just kind of refresh you that we actually do a variety of different things in the healthcare space. We do risk-adjusting, which we call our Enterprise Analytics group and all of the analytics driven off of that. We do Payment Accuracy which is combing through claims flows to make sure that there are no fraudulent, wasteful or abusive claims and then we do a lot of work in the Revenue Integrity space, which is the collection of things that we do, which is fundamentally aimed at helping plans to assure that they are being completely and properly reimbursed for the work that they do, particularly if it is in the Medicare context, so a wide variety of things. And MediConnect, our most recent acquisition, actually supports both -- the Revenue Integrity business, but also the opportunity to accumulate. Clinical data will increasingly become meaningful inside of our Enterprise Analytics.

So with that as the backdrop, we are really kind of hitting on all cylinders is sort of the first part of the answer. So I wouldn't really point to any one thing. I would say that it is the case that Verisk Health collectively has really emerged as a meaningful vendor inside of the space. We bring a number of things. We bring a lot of unique intellectual property. We bring kind of a unique positioning because we -- I think we are seen as, in many ways, as kind of a Switzerland inside of the space. I think it has been noticed by the marketplace that Verisk is strongly supportive of our business in the healthcare arena and so that kind of corporate commitment I think does -- we are selling a lot of enterprise-level applications and so that level of commitment really does communicate into the market creating an even greater sense of confidence to buyer solutions.

And the healthcare space remains one where there is mounting interest on the part of our customers in using data analytics to drive their decision-making. So it is very broadly based I would say and as Mark said before, we remain very optimistic about the opportunity to continue to grow the business in the future.

I mean we have from time to time at Investor Day meetings and in other forums just made the point that the space is very large and you know what our run rate was in the third quarter. We are still relatively modest in terms of the fraction of the overall market that we represent.

So what is happening right now is very broadly based. It is not one part of our business and it is not one theme and it is certainly not related to what is going on with respect to regulation in the healthcare space. That is sort of mildly benign from our perspective.

Bracket for us some reasonable organic growth expectations for Healthcare in 2013.

I don't think we put out numbers like that, but, again, I will just say that the kinds of conditions, which are underlying the performance that we have turned in recently, we don't see any changes in those. Obviously, third quarter organically was very strong, but the underlying conditions remain.

Thank you. And just a question for Mark, if I might. I just want to understand your comments on the Mortgage business for 2012. I think your updated guidance was down 12% to 15% for the year versus 7%. What has changed in your thinking on the forensic side that would lead you to reduce guidance for the year?

I think the short answer is we are very much dependent upon our customers to provide us with insights as to what and how much service they need and we just haven't seen the type of commitment from customers that we need to feel confident about fourth quarter. And specifically, we think that they are going to need less, so we are trying to provide you with as much information and insight as we have.

The reality is most of our businesses, those type of transactional services are very much nondiscretionary in the minds of most of our customers. The Mortgage and specifically the forensic review is unlike that and we just felt that that is the best guess right now around 4Q.

Are you signaling cost-reduction actions to limit any earnings impact from that decline?

Well, I think we have always been very cost-conscious. So to the extent that you think about a decline in top line, we are going to try to be as thoughtful around expenses as possible. But obviously it is tough to pull enough expense out to [toss] the type of declines that we have seen on the top.

Thank you very much.

Andrew Steinerman, JPMorgan.

I wanted to ask about the trajectory of the RA growth, which has been mid-single digit going into next year. And I wanted to know if it is likely that Verisk's RA segment will accelerate in 2013 knowing January is a key point, asking about the lag effects of the 4% P&C premium growth in 2011.

Yes, Mark?

Sure. Thank you, Frank. I think what we continue to see is, first of all, we like the fact that there is a stronger market that helps our customers and obviously, a customer that is feeling good about their business, they are more apt -- they are more likely to purchase services from others.

When we think about specifically premiums, I think the way we continue to interact with customers is not just about how Risk Assessment or how our Industry Standard Programs will interact, but more importantly what is the best way to grow our business with our customers across the insurance space in broad terms.

So clearly, the harder market or at least the better pricing -- I'm not sure if it is going to be called a harder market -- will potentially have good news for our customers. I think what we are going to remain is pretty tempered in the way we think about Risk Assessment because what we really believe is the opportunity to grow inside those insurance customers is to sell them some Decision Analytics products and our customers receive value there and we think that is the best way to grow our business and we continue to believe that.

Sure, no, I understand your answer and surely a broader customer sale is great, but isn't there some mechanics with your RA line and the premiums that are up in 2011?

So I think you were talking about the Industry Standard Program. Those premiums are related to our invoices, but, as I said, I think we have always described it as typically we try to put in some type of inflationary type of increases and I think we would continue to think about that into the future because we really do believe there is some good opportunity to make sure that we can sell, continue to sell more product and bigger volumes of product into those customers, as well as those Industry Standard Programs. So I don't see a sweeping uptake, no. I think we will be pretty tempered in the way we handle those.

Perfect. Thank you very much.

Kelly Flynn, Credit Suisse.

I want to go back to Healthcare. I was wondering if you could just be a little bit more clear on the sequential revenue decline. Do you expect that at both MediConnect and the rest of the Healthcare business or is it going to be more pronounced at one or the other?

Mark, why don't you start that?

Sure. So I think we have always talked about the fact that a combination of MediConnect and the Revenue Integrity businesses are very much focused on the latter part of the year and it is tied to the CMS review process. So what we were just trying to describe is that we continue to see wonderful growth. But as you think about those two businesses, which are for the most part the latter part of the year weighted, it is a little difficult to understand how things move between third and fourth quarter and we have seen a good third quarter. I think we would continue to see a good fourth quarter, but, in absolute dollar terms, we could see a slight dip between third and fourth quarter because of those two specific businesses.

Okay. And then I mean just back to the comment someone made earlier about the implied growth, I mean I think it does come in at the high single digits organically if you calculate based on everything you said and I know you tried to clarify, Eva, but it didn't really change the imprint. So I am just wondering if you want to clarify any further.

Yes, Kelly, I think if you did the simple math and you took -- again, we are not going to give you forecasts for the fourth quarter, but look at the third-quarter revenue, look at what MediConnect did and if you just did that simple math and took out MediConnect, because again I believe you are getting to organic, you would see a double-digit growth rate if you did that math. Now both of those pieces may move a bit, but I think that that would be the simple math.

Okay. All right, and then can we talk about Argus? I think you said, I think maybe, Frank, in your comments that your future expectations were reconfirmed, but I was hoping you could just reconfirm them as far as the numbers. Are you still thinking about that as a 15% to 20% organic grower and then maybe you could comment on the margins? I think Mark said they were accretive to the corporate margin. Does that imply that it is higher than what the EBITDA margin was this quarter and that is what we should expect going forward?

Yes, I will turn to Mark for the numbers, but I would reconfirm, as Scott had indicated in his comments, that, as we have visited with Argus, that has both great leadership and tremendous assets, we see a lot of opportunities for our entire enterprise beyond our original expectations. Though we are optimistic that that is what we would find. Mark, why don't you comment on the numbers?

Sure. Everything that we have said in the past with regard to the growth rates you describe are -- I think we remain consistent with those and specifically around margins, yes, I mean Argus has some wonderful margins. As you have seen in historic results, they are actually running ahead of the Verisk margins and I think that will continue into the future.

Okay, perfect. Thank you.

Tim McHugh, William Blair & Co.

(technical difficulty) dialing in for Tim this morning. I appreciate the color you guys gave earlier on the healthcare business and I just wanted to specifically ask about MediConnect. If we compare that to the rest of the Healthcare practice, how would you compare that growth rate? Is it similar or is it slower or faster on an organic basis?

Mark?

So MediConnect, once again, was not a part of our operations in 2011 and if you looked at some of the filings we did regarding the prior year, I think you will see that MediConnect has been growing extremely well and I think probably a little bit faster than the organic growth we even described for our Healthcare business. So they are doing well and it has ramped very nicely. And I think as Scott described, a part of the power of MediConnect is not just Medicaid alone; it is part of that overall suite of solutions. The business that is our Revenue Integrity business in combination with some of the HEDIS reporting and the MediConnect business all in one provide a very nice suite of solutions to a set of customers. And I think it has been well-received by our customers.

Okay. And then if we looked at the acquisition environment right now, could you maybe talk a little bit about the opportunities you are seeing there and if there are any particular sectors you guys are looking at more than others?

Yes, let me comment on that. There are opportunities out there. There are no particular sectors that we look at more than others. As I observed in my comments, and this is Frank, we are looking for good strategic fits at what we consider an appropriate price given the growth profile of the companies that we look at.

There are certain characteristics that we particularly like, that is that they have business models much like the businesses that we have and as we look for international opportunities, that is a plus. But we see opportunities, especially in supply chain, to add to our portfolio, but we are not exclusive to just that. We look across the entire spectrum of our strategic map.

Okay, great. Thanks.

Bill Clark, KBW.

(technical difficulty) Healthcare margins being modestly lower than Insurance. Yet you have been able to maintain and even grow overall Decision Analytics margins as Healthcare has become a bigger piece of that segment. Just trying to find out if you would say that that is more due to the gap between healthcare and insurance margins closing or are you seeing margin expansion across all verticals and the difference between kind of product types is staying about the same?

Mark?

Sure. I apologize. So one of the great things about all of our businesses, there is natural operating leverage across the board. So to your specific question, we have seen an increase in the margins inside of our Healthcare business. In part, that is because we have more volumes running through, it doesn't take as many people to run those volumes through, so natural scale.

The other thing that has happened is to the point that we were talking about earlier, we weren't able to recognize as much revenue. Implementation takes time, it takes effort and then sometimes that revenue is somewhat deferred. So you are seeing the cumulative effects of both those on the Healthcare business.

And also, just to be clear, across the board, with the exception of Mortgage obviously, we see and have seen scale and ramping margins in our Decision Analytics businesses.

Okay, thank you.

Bill Warmington, Raymond James.

Good morning, everyone. So a question for you on your long-term EBITDA margin target. We have talked about 43% to 45% in the past and you guys look like you're on target to actually be above that potentially this year and with the Argus acquisition, that would seem to put upward pressure on that. So with that in mind, is that still the way we should be thinking about it or are we thinking that it is probably likely to move up into the 44% to 46% range?

Mark?

Sure. So let me take that on. I think the reality is yes, you are right. Right now, we are running a bit above. I think what we continue to talk to you about and make sure everyone is aware of is that we really don't think about ways that we can keep our margins high. We think about ways we can grow our cash flows and where we can grow our top line for the long term. With that in mind, we are happy to see a lot of our business units coming to us with investment ideas and investment opportunities that have started in third quarter and will continue into 4Q and into '13.

So there is some costs that we feel will happen. We also expect that will contribute to the top line in the future. And although Argus and MediConnect have some very strong margins, as you noted, it is tough to find businesses to acquire that have those type of margin characteristics. So as we think about the long term, I think we still remain a little bit tempered about how big those margins can be because what we are most and first focused on is long-term growth.

Okay. And then if you could remind us, the comps on the Mortgage business in the fourth quarter versus third quarter, I believe eased. Is that enough to offset some of that decline or are we still likely to see another 200 basis point type drag?

So just to recap, I mean I think when we talked about the range of 12% to 15% for the full year, we factored in the fourth quarter of 2011. So I think that is kind of our best guess, full year, including the comp in 4Q of '11.

Got it. And then --

Did you have one more? I'm sorry.

And then one last question for you was on the -- how do you balance your goal of taking leverage from 2.2 to 2 and then also the share repurchase and the M&A opportunities?

Good question. I think what we have tried to do is really be very thoughtful about our capital management program. So at the time Argus came along, we were in talks and knew about Argus for a long time. It was a unique opportunity and we said we want to continue to be very growth-oriented. That is our primary focus and at that point, we have been telling everybody that we would go above that 2 times target.

I think once that happened and we jumped above the 2 times, we now have been thoughtful about the cash that goes out the door and that comes in the form of acquisitions. We will do the right acquisitions. They will probably be for a bit of a time a little bit smaller. At the same time, we have also dialed back our buyback program so that hopefully in the near term, we will be back towards that 2 times level and we have a little greater flexibility around acquisitions as we kind of go into the future towards the latter part and middle of 2013.

Great. Thank you very much.

Kevin McVeigh, Macquarie.

Thank you. Could you remind us how big is the Catastrophe Modeling business as a percentage of revenue and with Sandy and obviously Katrina not that far back, while the claims, it sounds like you're not going to get a spike there, does it impact kind of your clients' view on overall P&C and just bode well for the business longer term as we think about it going forward?

Mark, do you want to start that with percentage?

Sure. So first of all, obviously, we haven't provided you specific visibility into the Catastrophe Modeling business. It is a seasoned part of our insurance category within Decision Analytics. It has been growing very nicely over the last year and I think, Frank, from the standpoint of characteristics and how the markets (multiple speakers).

Yes, yes, I will go there and -- sure. I would make this observation. The Cat Modeling business did not get recognized until we had Andrew on the heels of Hugo, '89 and 2002 I think Andrew was. And then since then, of course, it has had significant pickup. What will likely happen here is that we -- number one, AIR delivers great science and great product and that is being recognized, so that we are getting more opportunities to be sometimes an additional model to companies that have not been customers of ours in the past.

We have done 100% of the cap bonds. We have the model within 100% of the cap bonds that have been issued this year and we are finding that other industries are recognizing the value of these catastrophe models in their enterprise risk management. So we will see, A, recognition of the value proposition around the product and B, I think we will see more market opportunities as risk managers understand that these cat models can be used in their organizations beyond just P&C.

And Frank, could you just remind us what other industries beyond the traditional P&C are kind of focusing on this services (inaudible)?

I can point to one that we have already gotten some pickup and that is crops where the models have had that impact, but when you think of supply chain in its entirety, the disruption associated with that I think is going to cause, with Sandy, is going to cause an increased focus on how companies can get a better handle, enterprises can get a better handle on their exposures.

Thank you.

At this time, there are no further questions.

Do we have no more questions, operator?

No, sir. There are no further questions.

Okay, well, thank you very much. We appreciate everyone joining us. We are sorry that we had to delay, but we think it was a prudent decision and we appreciate the value of the questions and the quality of them and look forward to speaking with you at the next quarter. Have a good day.

Thank you. This concludes the conference call. You may now disconnect.