Verisk Analytics Inc (VRSK) 2013 Q1 法說會逐字稿

Good day everyone, and welcome to the Verisk Analytics first quarter 2013 earnings results conference call. This call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Verisk's Senior Vice President, Treasurer, and Head of Investor Relations, Ms. Eva Huston. Ms. Huston, please go ahead.

Thank you Christy, and good morning to everyone. We appreciate you joining us today for a discussion of our first quarter 2013 financial results. With me on the call this morning are Scott Stephenson, President and Chief Executive Officer, and Mark Anquillare, Chief Financial Officer. Following comments by Scott and Mark highlighting some 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 in the investors section of our website, Verisk.com. The earnings release has also been attached to an 8-K that we have furnished to the SEC. A replay of this call will be available for 30 days until May 30th, 2013 on our website and by dial-in.

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

Thank you Eva, and good morning to everyone. In the first quarter of 2013, we delivered strong overall performance, with total revenue growth of over 16%, and diluted adjusted EPS growth of about 13%. Our consolidated organic revenue growth in the first quarter was 6.8%, our organic revenue growth was 9.5% in the first quarter excluding our mortgage analytics business, which continues to face some macro challenges as we have discussed with you before. Profitability was strong with an EBITDA margin of over 44% in the quarter, even while we continued to invest in innovation, as we signaled to you last quarter. Our free cash flow growth adjusted for the timing of a tax benefit that Mark will describe later was also strong, increasing over 14% in the quarter. We remain disciplined in our use of capital, and we are focused on delivering shareholder returns. We returned capital to our shareholders through repurchases in this quarter of about $22 million.

We remain active and disciplined in looking at M&A. We focus on assets with a genuine strategic fit, a strong financial model, and an appropriate valuation in relation to future growth prospects. Last year as you know, we spent about $800 million on acquisitions, principally for MediConnect and Argus, and we remain very pleased with last year's acquisitions, both from a strategic as well as a performance perspective.

With those high level results as background, let me just say that I am pleased to continue speaking with you about our strategy, as I have done since our IPO in 2009, but now from the CEO's seat. We will build on a strong platform developed and led for over a decade by Frank Coyne, who I am delighted to say remains with us as the Chairman of our Board.

These are exciting times for Verisk and our over 6,000 employees who have the task everyday of creating value for our customers, and as a result for our shareholders. I hope that a lot of you were able to attend or listen to our Investor Day presentations in March, where we shared with you the deep industry expertise and the innovative solutions that we deliver daily.

As we have done for many years on our journey, we will continue to emphasize four things.

First, looking for propriety data sets and analytic methods.

Second, developing scalable industry standard solutions.

Third, re-purposing our Intellectual Property assets for enhanced value, for both existing as well as new customers.

And fourth, thinking with what we call the N+1 mindset.

We continue to focus on investment opportunities, and we are encouraging our teams to bring more forward. As we have discussed, we are funding a number of initiatives in 2013, and we plan to continue to do so into the future.

Our list of investment initiatives in 2013 is very exciting, and includes remote imagery, Touchstone, which is our next generation platform for catastrophe modeling, the unified healthcare platform, and healthcare data aggregation, and supply chain innovations. Combining the power of analytics with the creativity of all of our team members, we intend to build on the strong financial results we delivered this quarter. The ongoing experience, knowledge, and dedication of our employees across our enterprise positions us well for the rest of 2013. With that, let me turn it over to Mark to cover our financial results in more detail.

Thank you, Scott. We are pleased with our performance in the first quarter, in which we delivered both growth and profitability, while also investing and planning for the future. In the first quarter, total revenue grew 16.4%, and organic revenue growth 6.8%. The results reflect continued exceptional revenue performance in healthcare. Even as we cycle past strength from 2012 and good revenue growth in our insurance solutions.

Mortgage revenue growth remained a headwind to overall growth. Excluding our mortgage analytics business, organic revenue growth in the quarter was 9.5%. For the first quarter, our Decision Analytics segment delivered 24.4% revenue growth, of which 7.8% was organic, excluding the acquisitions of MediConnect, Argus, and Aspect. Next quarter MediConnect will be part of the organic revenue growth in the healthcare category. Within Decision Analytics, our insurance category grew 8.8% in the first quarter, and 8.3% organically, excluding the acquisition of Aspect. Our underwriting solutions delivered strong growth, and we saw continued double-digit growth in our Catastrophe Modeling solutions in the quarter.

Our claims solutions, which are well penetrated, also contributed to growth. We continue to innovate in these areas, as well as others, to add to the growth. In financial services, which includes both Argus and the mortgage analytics business, revenue grew 28.1% in the quarter. Argus is an excellent business performing very well since the acquisition in the third quarter of 2012. Argus is on track to deliver at least mid-teens growth in 2013, as discussed at the time of the acquisition.

The mortgage portion of financial services revenue declined 19.1% in the first quarter. Within our mortgage tools area, we are seeing recent trends continuing. Our origination-related revenue continues to grow, while our mortgage revenue declined due to the ongoing normalization of the forensic piece of the business. Thinking about the mortgage portion of financial services for 2013, we continue to believe the full year 2013 results may mirror the revenue decline of about 11% we saw in the full year 2012.

Healthcare continues to deliver exceptional revenue growth, 93.9% total revenue growth for the first quarter, and organic revenue growth of 39%, which exceeded our expectations. Our total revenue growth benefited from the second quarter of 2012 addition of MediConnect, another acquisition that has performed strongly. The performance to-date continues to validate our strategy of combining our Revenue Integrity and HEDIS reporting businesses with MediConnect, to create a comprehensive solution, which we call Revenue and Quality Intelligence, or RQI.

Organically, we continue to add and implement new customers, and expand our relationships with end customers. I think you particularly got a great feel for the strength of the healthcare opportunity and the growth prospects at our Investor Day in March. We remain excited about the opportunity. We expect growth to remain well above corporate average from an organic perspective, but percentages will naturally be impacted as we grow off of a larger base. Our specialized margins revenue grew 3.6% in the first quarter, with modest growth from our weather and climate analytics, and from our supply chain solutions, due to lower growth from government contracts and customer projects.

Turning to risk assessment for the first quarter, we reported revenue growth of 5.3%, indicating the value to our longstanding insurance customers. Our Industry Standard Insurance Programs grew 3.6% in the quarter, reflecting our 2013 invoices, which were effective January 1. Excluding about $1 million of non-recurring license fee revenue in first quarter of 2012, which we discussed last year, Industry Standard growth would have been about 4.4%. As a reminder, beginning in the fourth quarter of 2012, we have included the actuarial services and statistical agency services categories as part of the Industry Standard Programs.

Our Property Specific Information revenue increased 11.1% in the quarter. This increase was from new sales, and higher volumes from certain customers, as well as incremental revenue contributions due to the expiration of our revenue sharing agreement with a technology provider in the fourth quarter of 2012. EBITDA for the first quarter was $179.7 million as outlined in table three of our press release. EBITDA increased 12.6% for the quarter, and our EBITDA margin was 44.6%, reflecting good expense management, even as we invested in our businesses as previously discussed. Additionally in the quarter, acquisitions mitigated the reported consolidated EBITDA margin by about 100 basis points.

As you know, we have an ESOP in place, which is approaching its final distribution date of December 2013. We are evaluating the potential for extending the ESOP, but if we choose not to do so, we could expect to see a non-cash charge of up to $27 million in the year, dependent upon the Verisk stock price. In that case, we could also report an adjusted EBITDA number as you have seen us do in the past, to help you better understand the underlying performance of the business.

The margins in Decision Analytics were 37.3% in the first quarter of 2013, versus 39.3% in first quarter 2012. We continue to see a mix shift that impacts margins as our faster growing businesses like healthcare, have not yet scaled to the margins of the more mature businesses. In addition, the margin in the quarter reflects some of the investments that we have previously outlined. We remain very comfortable with the modest near-term margin impact when we see the opportunity to drive faster and sustainable top line growth into the future.

In the quarter, our Risk Assessment margins were 56.4% versus 55.4% in first quarter of 2012. Our business continues to show scalable profitability, even while we continue to invest in developing new solutions. Also, please recall our invoices increases are generally effective in the first quarter, and our employee compensation increases begin their impact in second quarter, we see the higher margins in the first quarter relative to second. As noted last quarter, we expect our investments which are primarily reflected in the Decision Analytics segments, to be weighted more towards the first half of 2013, and could impact the P&L by about $10 million to $15 million in total, which would have the impact of lowering margins. Our investments are in a combination of people, data, hardware and software, some of which flow through the P&L, but some through the balance sheet as CapEx.

As you know, our forecast is about $115 million in CapEx for 2013, including about $20 million related to these investment initiatives. We expect our corporate margin will be impacted for the full year 2013, as our incremental EBITDA margins from existing solutions offset investments. Our interest expense was $3.7 million for the first quarter versus the respective period in 2012. This increase was due to the higher debt balances taken on during 2012 related to our acquisitions. We ended first quarter with total debt of about $1.5 billion, and no outstanding revolver borrowings.

Our reported tax rate was 36.7% for the quarter. As discussed last quarter, we have been actively working on our tax planning strategies and were rewarded by the benefits resulting from this effort, as well as an R&D tax credit that benefited us in the first quarter. For 2013, the tax rate will likely fluctuate from quarter-to-quarter. However, 38% still seems to be about the right level for your models, perhaps with a modest bias to a slightly lower rate for the full year.

Coming down to the net income line, 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 the income tax effect on that amortization. Our adjusted net income increased 14.3% to $91.2 million for the quarter, adjusted EPS on a fully diluted basis was $0.53 for the quarter, an increase of 12.8%. The average diluted share count was 172.8 million shares for the quarter. On March 31, 2013, our diluted share count was 173.1 million shares. In the quarter, we purchased about 382,000 shares for about $21.5 million. At quarter-end, we had about 122.7 million left under our authorization. Our share repurchase program has been successful to-date, generating annualized IRRs of over 20%. For 2013, we continue to anticipate at a minimum to buy shares to offset dilution.

Turning to our balance sheet. As of [March 31] (corrected by company after the call), our cash and cash equivalents were [$267 million] (corrected by company after the call). Total debt, both short term and long-term totaled $1.5 billion. Today, our total incremental debt capacity is over $850 million, and will grow with our EBITDA and cash flow. Our debt to pro forma EBITDA at March 31st was 2 times, at our steady state target. 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 unique opportunities, because our free cash flow is strong, and allows us to de-lever quickly, as we have demonstrated since our acquisition of Argus in the third quarter of 2012.

In the first quarter, free cash flow, which we define as cash from operations less capital expenditures, was $162.7 million, a decrease of about $10.9 million, or 6.3%, versus the first quarter of 2012. Adjusting for the timing of excess tax benefits in the quarter, free cash flow in the quarter was $198.9 million, reflecting growth of 14.5% compared to the first quarter of 2012. Our capital expenditures were 7.1% of revenue in the first quarter, consistent with the incremental investments we discussed last quarter.

Free cash flow represented 90.6% of EBITDA for first quarter 2013 reflecting our strong first quarter cash flow generation, based upon the timing of our customer invoice payments. Adjusted for the timing of the excess tax benefits mentioned previously, free cash flow represented over 100% of EBITDA. As we think about capital spending for 2013, we are still expecting $115 million for the full year, including the $20 million of investment initiative spending.

As you think about your models for the full year 2013, we anticipate amortization of intangible assets of about $64 million, fixed asset depreciation and amortization of about $74 million, and a tax rate of about 38% with modest downward bias. We aim to keep share count flat through our repurchase program. Overall, our business is performing very well, we have a nice mix of growth from multiple verticals, and we continue to invest for 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 line of Manav Patnaik with Barclays.

Thank you guys, good morning. Just on the healthcare side, obviously you have continued excellent performance as you talked about, and I think you had mentioned that it definitely delivered some growth better than your internal expectations. I was just wondering if you could provide a little more color on where they would be relative to what you were expecting? Also, I think you made a comment on sort of healthcare as one of the segments that hasn't yet scaled to Company margins. Just thinking long-term, like how long and what sort of scale do you anticipate to get before it does get to those set of margins?

To your question, the first part, we are actually very pleased with how the different segments of the business are performing overall. We see them all as very important to our future opportunities in the vertical, so it is not so much any one segment, and as I think you all know, we are working very hard actually to find a way to pull together our data assets so that we can into the unified platform, so that we can actually create even more value, and that capability is going to underpin all of our segments going forward. In terms of the scalability of the business, you really said it. We haven't yet arrived at a point where the business is fully scaled, yet it is coming along nicely. We see this as a long-term journey as we continue to try to establish leadership inside of the category. Mark, I don't know if you want to add anything to that.

No, I think you are right on. It is really about life cycle of products. There are some mature products inside of the insurance space as an example, that we have kind of achieved some relatively high margins. Healthcare I think we scale on each passing quarter, and each passing year we continue to move along that journey. There are probably some stronger competition in healthcare than some of the insurance places where we compete, so that also factors into this.

Okay. Then if I could just ask one more. If you could give a little more color on just what you guys see as your acquisition pipeline? You guys obviously have a pretty healthy cash balance right now, it seems like one of the highest in a while. What sort of activity is going on in the back end? Just some color on that?

We are as active as we have ever been, and we are always proceeding from our strategy as it relates to the M&A agenda. Our case is not really founded so much on sort of the M&A climate overall. It is much more we are proactively in the market creating relationship and suggesting opportunities, and we continue to find that we have a very high success rate in terms of engaging with companies where there is at least the belief where there may be a strategic fit, so the work of the team continues just as it has. I think we have said to you in the past that we certainly see healthcare as one of the places where we certainly anticipate additional M&A activity, and the work we are doing right now is very consistent with that. So it is really the same picture as it has always been.

Alright, thank you very much, guys.

Your next question is from the line of Tim McHugh with William Blair & Company.

Thank you. First just want to ask about the insurance vertical. I know they are not as much your expectations, but I think some people were hoping this year that the lag impact of insurance premiums going up, as well as maybe some easier weather related comps would help drive a pick up in the growth rate of that business, and it is more so steady right now as we look at the numbers. Just trying to get your sense, is the business performing as would you have expected, or is there any hope for kind of a pick up in the growth rate this year because of those factors?

You have got a couple of things in there, Tim. First of all, on balance, we are pleased with where we are in the insurance vertical right now. I just want to stress as a point that we have made consistently, which is we really see the totality of what we do in the vertical, that is really where our strategy lies. We end up talking about RA and DA, and we are happy to do that, but in reality, the way the business works is that we are trying to knit solutions together. It is also the case that customers look to deal with us with respect to the full suite that we are providing them, so it is an all-in-all, so we are really tracking our performance in the vertical overall. So that said, you referenced weather-related effects. There actually was quietness, there has been quietness recently, so that does factor in somewhere, but we are really just on the long march of causing our solutions to be valuable, and to be deeply embedded with our customers, the net effect of all of that is we do believe that as 2013 moves forward, that we will see acceleration in the revenue growth rate of the insurance vertical.

Okay, thanks. Then MediConnect, as that rolls into the business, I think you described to us that it had a tough comp in the year ago period. I know it is not in your numbers, but if we just backed into what it was, but I guess just going forward, what is kind of the underlying organic growth rate? Trying to get a sense if that gets added into the organic growth rate for healthcare. Does that enhance it, or bring it down, or is it about the same as the rest of the vertical?

We don't give specific guidance, but as you correctly observed, the comp was a tough one because of some roll-forward in the prior year. We clearly think that the MediConnect inclusion is going to add to the overall corporate organic growth rate, so happy with that. I also just want to remind you, when we keep talking about the power of the comprehensive solutions and what we refer to as RQI, although not direct and explicit, the combined power of the MediConnect acquisition with what was our Revenue Integrity business, has helped us on the Revenue Integrity win business, so it has almost starting to contribute before it is calculated in. I think we feel very good in the opportunities in MediConnect, and the opportunities for RQI overall, and as I said, from a high level corporate perspective, it should definitely add to the full corporate growth.

Okay, thank you.

Your next question is from Andrew Jeffrey with SunTrust.

Good morning. Thanks for taking the question.

Good morning.

Scott, from a high level standpoint, your businesses seem to be all performing pretty well, with the obviously exception of mortgage. It has been multiple quarters now, at least on the forensic side, could you just give us a sense of your strategic thoughts on that business, because there seems to be a disconnect between all of your other assets and mortgage? Do you remain committed to that? What are your thought processes as we enter 2013 now?

The context here has to be the seismic changes in the mortgage marketplace that have occurred over the last several years, that is just sort of the backdrop here. Distinguish in your thinking between the automated solutions that we provide, which are aimed at supporting the underwriting process, and the forensic solutions that we provide, which are aimed at supporting the resolution of loans which have apparently gone bad, and those businesses respond to different things that are going on inside of the mortgage vertical, and it is the latter part, it is the forensic piece that has been going through an adjustment as underwriting standards change so much, and as we move through a bubble of a very large volume of loans which were in trouble, as we begin to normalize the forensic side of that is naturally going to pull back.

The automated solutions that we have in support of the origination process, and a suite of other newer solutions that we have put together, all of those are actually very promising, and they are doing very well. We are very excited about the team that we have got that is leading for us there. So our focus is on making a success out of the parts of that business that naturally represent the greatest growth opportunity going forward, while trying to minimize the impacts of the market adjustment with respect to the volume of forensic activity. Obviously, the net effect of all of that is what you saw in the first quarter.

There comes a point where the downward fall of the forensic adjustment is naturally going to work its way through, and our focus is then on a business at that point, which our aim is to see it be advanced to just run the Verisk playbook basically. Newer propriety forms of data, new analytic methods, a deeper reach into that marketplace. Our team there is dealing with kind of a once in an economic lifetime adjustment in a marketplace, and I think they have actually done a very fine job in working their way through that.

So your view continues to be that at some point as we get through this normalization process, that mortgage could have an organic revenue growth rate that is consistent with the Verisk corporate average?

That would be our aim.

Okay, one more if I may. You have talked about the potential for better organic revenue growth in insurance as the year goes along here. I assume most of that will come from DA. Could you speak specifically about some of the innovations that you think could drive that? Is that part of the early 2013 investment cycle, or is this an ongoing process, and is it within your claims solution subset? Where do you think that pick up might come from?

That is a great question. We are innovating on a number of fronts, but there are a few things that stand up and stand out. First of all, we are very happy with what's going on in our Catastrophe Modeling business, which continues to demonstrate leadership in all sorts of ways, and it is a very vibrant category, where there are still lots of country peril combinations to be modeled, and there is a whole new wave of software innovation coming into that business, where we feel we are at the forefront. We are very happy with that and about all of that.

Our underwriting solutions continue to advance very nicely. I think we have described in the past that when you look at the different places where we serve inside of the insurance vertical, we have great strength with respect to the rating, the pricing process for the insurance product, great strength with respect to the claims process, and great strength with respect to some of the sort of complex analytics, which wash across all of that, including Catastrophe Modeling as I mentioned before, and fraud fighting. In the underwriting category, the underwriting not rating part of the insurance process, we have opportunities to move towards an equivalent leadership position. We are not there today, but we are actually advancing very nicely.

And then some of the investing that we are doing in first half of 2013, we hope and expect will be a part of 2013 results towards the back half of the year. We are very excited about opportunities to enhance replacement and repair cost estimating with some new data sets that really haven't been brought into that process before in any measurable way, so we do expect a contribution from that in the latter half of the year.

Thank you very much.

Your next question is from Andrew Steinerman with JPMorgan.

About MediConnect, I think it was about $17 million in the quarter, and I wanted you to first remind us of seasonality. I recall there is a third and fourth quarter seasonality, I believe MediConnect was down about 28%, if my math is right, sequentially, and compared from the first to the fourth quarter, I want to know if that is a normal seasonality for MediConnect, and also, if you are willing to, I wanted to know if you would give us a pro forma year-over-year growth rate for MediConnect, as if it was in place a year ago?

Let me answer the question like we have in the past. I think we think of the business as a whole, so let's use healthcare broadly. It is kind of a 40/60 split, with 40 being the first half, 60 being in the second half of the year, and that kind of including all three of those categories of healthcare. I guess what I am trying to focus in on your MediConnect question, one more time, Andrew. You are talking about growth quarter-to-quarter or are you trying to do year back--?.

Mark, I was a little sneaky, I kind of asked both. My question is first, is the type of sequential decline that I calculated in the first quarter, which was down sequentially about 28% for MediConnect, being $17 million in the quarter; that a normal sequential decline seasonally, I think it might be, but we don't have the history? Then I said secondly, if you were willing to, could you give us a pro forma growth rate for MediConnect year-over-year as if it was in the quarter a year ago?

Hey, Andrew, it is Eva. I just wanted to jump in on your question of sequential, I think it has hard to look at it that way, because the business overall is growing, so what the sequential differences is between 4Q and 1Q gets blended with the overall growth in the business. I would encourage you to look at it as the front half/back half as opposed to the sequential. That is more logical. We had also talked to you last quarter, reminding you that the Q1 2012 MediConnect number, which I believe was $17 million to $18 million, included $3 million to $4 million of overflow from Q4 of 2011. Remember, we have this nature where our customers try to get stuff done in three and four, but sometimes it goes into January because of the CMS deadlines, so just take those into account when you are thinking about it. And I think if you were to look at the numbers, you can see the growth in Q1, if you adjust for that $3 million to $4 million, you probably have something like a 15% to 20% growth rate.

Typically the deadlines for working with CMS is around January 30th, and how fast the customers go, whether there is a rollover into the first quarter, or everything is done in the fourth quarter is sometimes more of a customer specific requirement.

If you pull it together, would you say this is normal seasonality for MediConnect then?

Yes, but I wouldn't pin that on the percentage number per se, but yes, the seasonality is normal.

Appreciate it, Eva, thank you.

(Operator Instructions). Your next question comes from the line of Suzie Stein with Morgan Stanley.

Hi. Organic growth in specialized markets slipped a little and you mentioned government as an issue there. Can you talk about how big government is in that segment, and what would you expect as far as organic growth for the remainder of this year?

So Suzie, I think we feel a couple of things. There are two businesses that are generally in there, one is more focused on the environmental health and safety. There I think we continue to feel good about that business, the supply chain, management, we are doing some investing around that, and I think there is some general excitement. That may have been just a little bit more around timing of the customers and use of product, so nothing to change perspectives relative to what happened last year.

Inside the other piece of the business, which is the climate risk portion, where we do work on behalf of and with the government, two things happening there. First of all, in the quarter, it was more about a government contract that we had less volumes, so a little bit more project oriented from that government, and that is about 40% of the business. I think the second part of the question just to give you, the furlough and impact of furloughs on that government-related business, could be something that could affect us, the numbers aren't big. As we progress through the rest of the year, that is the only thing that is a little bit on our mind with regard to growth rates within that portion of specialized.

Okay. Can you give us any more detail on Argus and the performance there? I guess what has changed either on the revenue or expense side with the company under the Verisk umbrella?

Let me talk about how generally the Argus team and the Argus assets are working into what we are doing at Verisk. We are delighted to have the Argus team as our partners in Verisk. I would say that if anything, I would say that the business, its performance, and its fit with what we are attempting to accomplish, is even better than we had anticipated, and our expectations were expectations were pretty strong.

The leadership team at Argus is already providing leadership broadly inside of Verisk. As we work to find opportunities to work across verticals, and we are very encouraged that even in the short period of time since we came together, we have had multiple customers who actually worked with Verisk across the vertical markets, particularly the insurance and the banking verticals, have actually specifically come to us looking for support that we can provide them, in optimizing their businesses by taking a look at their books of business across these different categories. It is just really exciting that the market is responding to what it is that we see there. Specific to Argus as Argus, apart from these opportunities to build in and with the rest of Verisk, the business continues to perform right on top of where we thought it would be.

Okay, thank you.

Your next question is from Eric Boyer with Wells Fargo.

I think you recently had your Annual User Conference. Any broad themes were you hearing from your customers? Anything that incrementally changes your view on the spending environment of your clients?

Yes. We had a really great session. I think you are thinking about with our P&C customers. We had that customer conference last month. We actually engage with our customers across the different verticals, within the verticals, so the event that we had last month is far from the only one where we pull together with our customers, but if that is the one that you are speaking about, it was a very positive event. And I think the themes that certainly struck me from that session were, number one, that I think a lot of companies are really leaning in to the notion that they can improve their businesses by making yet more intense use of data analytics, and I think the openness to looking to a third party like ourselves is at least as high as it has ever been.

There is specific and substantial interest in a few things. One would be the insights derived from weather and climate science, if you listen to the earnings calls of most publicly traded insurance companies, their CEOs are within the first two or three paragraphs are relating the weather to last quarter's results, either positively or negatively, and we actually empanelled some senior executives in a plenary session, and when asked the question of them, what do you see as the likeliest surprises in 2013, the answers all reduced to a surprise climatically, either up or down.

Happily, between our Catastrophe Modeling and our climate science, we are in a great position to provide leadership on that. I would say that the predictive modeling theme is very strong, new active, and then new data sets which are derived either from telemetry sources, or new ways of trying to observe physical assets from a distance, these are two themes that are really good. We feel as if the environment is one in which, if we do our work well and create good solutions, that the market is very open to what it is that we can do to support them.

Great, thanks. Mark, on the risk assessment margin strength, it was up year-over-year I think 100 basis points. Was that basically just due to lower pension, which was reduced I think in Q2 last year?

The pension change took place last year on March 1. There was very little benefit in first quarter relative to first quarter of 2012 resulting from the pension. This is just a more rapid scale side of the business.

Okay, great. That is all I had. Thanks a lot.

You are welcome.

Your next question is from Bill Clark with KBW.

Good morning. Given the new solutions development investing you have been doing in Decision Analytics, which you previously indicated would be concentrated mostly in the first half of the year. Can you just give us a sense of if the 37.3% EBITDA margin in that segment is what we should expect to repeat again in Q2, or did more of the investment fall in the first quarter, and maybe we will start to see that trend back up a little bit?

Let me start with that. Couple of things to note. One, I think the factors that contribute to it, yes, investment clearly was a part of the 1Q, the margins in DA. The other thing that is important to note is that we talk about the product mix shift, so as you think about product mix, you have healthcare growing quickly, the margins there, because it is a less mature business, don't have quite the same current margins as some of those insurance products, so that draws down or kind of hurts the margins too a little bit.

I also want to remind you about the seasonality to the conversation we had earlier. There is a level of fixed costs inside all of our healthcare business, and to the extent that you think about revenue being 40% in the first half of the year and 60% in the second half of the year, that helps for and bolsters some of the margins for healthcare as you think about two halves as opposed to the first half. I think all of those are kind of part of the mix for DA.

Okay, thank you.

At this time, there are no further audio questions. I would now like to turn the call back to Scott Stephenson for any closing remarks.

Thank you very much. We appreciate your questions today, your interest in our Company, and we look forward to speaking with you again next quarter. Thank you very much, and enjoy your day.

Ladies and gentlemen, this does conclude today's Verisk Analytics first quarter 2013 earnings results conference call. You may disconnect at this time.