Verisk Analytics Inc (VRSK) 2013 Q3 法說會逐字稿

Good day, everyone, and welcome to the Verisk Analytics third-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 Chief Knowledge Officer, Ms. Eva Huston. Ms. Huston, please go ahead.

Thank you, Julie, and good morning to everyone. We appreciate you joining us today for a discussion of our third-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 Investor 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 December 6, 2013 on our website and by dial in.

Finally, as set forth in more detail in today's earnings release, I will remind everybody 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 all. Before I launch into the financial results for this quarter, which were solid but shy of our longer-term objectives, I'd like to review several recent accomplishments. We are confident our long-term prospects remain excellent.

Over the years you've heard us speak about running the business with a long-term perspective. Our view on this remains consistent. Recently we have put more emphasis on our innovation agenda which has always been an underlying theme for how we have grown, while delighting our customers.

Our long-term management of the business and our determination to innovate are very well aligned. Innovation works over long cycles and we will continue to invest in a thoughtful way to support new data analytic solutions for our customers which will result in strong revenue growth over time.

We remain focused on our twin goals of organic growth through innovation and operating our business with efficiency and scalability. We were pleased to achieve several innovation milestones in the third quarter including initial customer use of our pooled data initiative for healthcare, our first provision of roof insight reports using aerial imagery, and the first sale of our new supply chain platform.

While these initiatives are not revenue generating in the quarter or materially in 2013, they are a good indication of future opportunity. To delve a bit deeper into what these can mean, let me take as an example the new pooled data initiative to fight healthcare fraud which Verisk Health launched in the third quarter.

With some of the nation's leading healthcare payers joining as founding members we built a database across payer information and analytics designed to combat the estimated $300 billion that America's healthcare system loses annually to fraud, waste and abuse. This initiative will turn the identification of improper or illicit billing practices from an abstract view into an actionable one and save millions in claims dollars in the process.

For the first time healthcare payers will be afforded the same comprehensive view of suspect providers and schemes that has proved so successful for the Property Casualty industry through our ClaimSearch platform.

As another example, as the fourth quarter began we announced the creation of the Verisk Climate division. Our customers in insurance and government and across the supply chain are increasingly voicing concern about the effects that climate volatility and environmental extremes are having on their operations and on their earnings.

We formed the Verisk Climate division to introduce new weather and environmental analytics that will enable our clients to assess and plan for environmental impacts and to implement strategies to differentiate and grow their businesses despite those impacts. We and our customers will benefit as we create integrated solutions that directly leverage the data and platforms of our other Verisk operating units.

While we manage the business with a long-term view, we are mindful of the need to execute day to day and we understand our progress toward our strategic objectives. In the third quarter our organic growth was a bit soft for three reasons.

First, property claims activity was low relative to historic norms leading to moderated transaction volumes on our claims estimating platform for the Property and Casualty industry.

Second, our mortgage business continues to adjust downward toward historic norms with respect to the analysis of defaulted loans.

And third, we made the decision to accept downward price adjustments in the revenue and quality intelligence division of Verisk Health in order to achieve higher committed volumes with key customers on a multi-year basis.

Last quarter we shared with you our forecast for organic growth at Verisk Health and we now expect organic growth for 2013 to be in the 12% to 14% range. The differences between our original assumptions and today were changes at four customer accounts. In three cases work has been slow to start or ramp and in one case we made price concessions in exchange for multi-year volume commitments.

Having redoubled our efforts to forecast this highly transactional business, we are comfortable that we can grow revenue in this business in the mid teens in 2014. While our near-term outlook has changed there has been no change in the market size or our opportunity to compete in the vertical.

Corporately we will remain focused on the efficiency of our operations while also elevating investment as we re-platform several solutions and acquire new data sets.

In the third quarter of 2013 we delivered a good overall performance with total revenue growth of 10% and diluted adjusted EPS growth of about 15%. Our consolidated organic revenue growth in the third quarter was about 6%, which is below our long-term historical trend line. Organic revenue growth was over 8% in the quarter excluding our mortgage analytics business with its macro challenges.

Profitability was strong with EBITDA margin over 46% in the quarter. We expect that level of margin to be a high watermark as we continue to manage toward our innovation agenda. We are focused on delivering value to our shareholders and we remain disciplined in our use of capital. We also remain active in looking at M&A. We continue to focus on assets with a strategic fit, a strong financial model and an appropriate valuation in relation to future growth opportunities.

In the quarter we returned capital to our shareholders through stock repurchases of about $24 million. Our remaining authorization at the end of the quarter was $282 million. We will continue to use our authorization consistent with our capital allocation strategy as we've previously outlined it. And with that let me turn it over to Mark to cover our financial results in more detail.

Thanks, Scott. For the third quarter we again delivered both revenue growth and increased profitability. In the third quarter total revenue grew 10% and organic revenue grew 6.1%. Excluding our historical mortgage business organic revenue growth in the quarter was 8.2%.

Let me dive in the details for you. For the third quarter our Decision Analytics segment delivered 11.2% of revenue growth, of which 5.2% was organic, excluding the acquisition of Argus. Beginning next quarter Argus will be part of the organic revenue growth in the financial services category.

Within Decision Analytics, our insurance category, revenue grew 11.5% in the quarter. We had discussed our expectation of accelerating revenue growth with a combined insurance revenue this year and are pleased to see ourselves continue in that direction with 9.5% organic revenue growth in the quarter including risk assessment.

Our underwriting solutions delivered strong growth and we saw continued double-digit growth in our catastrophe modeling solutions in the quarter. Our claims solutions also contributed to growth, but not as strongly as in the past due to the historic claims trends Scott referenced.

Additionally, we saw a benefit of a little over $3 million related to the implementation of our solutions with a large customer. The comparison in the fourth quarter for insurance is a bit tougher than we saw in the past two quarters.

In financial services, which includes both Argus and the mortgage analytics business, revenue grew 26.6% in the quarter. Argus has continued to perform very well since the acquisition in the third quarter 2012. Argus is a very ISO like business and serves as a trusted, neutral intermediary using a contributory data model to help create analytics which are deeply embedded in our customers' workflows.

The growth outlook at Argus remains positive including through international expansion and partnering opportunities, as well as additional penetration of existing customers. We have seen growth of over 20% year to date at Argus on a pro forma basis and feel good about exceeding our estimate of mid-teens growth in 2013.

The mortgage portion of the financial services revenue declined 16.6% in the third quarter. The origination-related revenue declined this quarter about in line with the market and the ongoing normalization of the forensic piece of the business continues. We were glad to see a slower decline in forensic revenue again this quarter. Full-year 2013 results may be a little lower than the revenue decline we saw in 2012 which was about 11%. The mortgage market remains bumpy and originations are expected to continue to decline through 2013.

Healthcare revenue grew 6.2% for the third quarter which was below our expectations. We had a few customers where we now expect transactional volumes to come through later than we'd previously planned. In addition, we mentioned last quarter, that there was an opportunity for us to trade near-term pricing for longer-term volume commitments. In some cases we are seeing the volumes ramp up more slowly than our customers initially anticipated.

These are very good customers where we continue to see these agreements as win-win for our longer-term relationships. As a result we now expect 2013 revenue growth to be between 12% and 14%. We expect growth in 2014 to be in the mid-teens. We remain excited about the opportunity in the healthcare space and we expect growth to remain above the corporate average growth rate in 2014.

Our specialized markets revenue declined 1.4% in the quarter. Growth in weather and climate analytics was affected by lower growth in government contracts. We are pleased to see continuing traction in our efforts to repurpose our intellectual property to meet strong demand from our P&C industry customers. We think our formation of Verisk Climate will enhance our ability to capitalize on that.

Growth in environmental health and safety solutions was driven by ongoing customer agreements and moderated by lower volumes from customer implementation projects. We expect to see a several million dollars sequential decline in specialized revenue next quarter due to cycling of government contracts in climate analytics prior to the ramp of our commercial solutions, as well as fewer environmental health and safety projects as we approach year end.

We think about AER and 3E as long-term options on the growing use of analytics around climate and supply chain, and see them as elements for our growth agenda in the future. In our recent launch of Verisk Climate division, and with our ongoing efforts in the supply-chain area, we can start to see evidence of the kind of traction we hope to gain over time.

Turning to Risk Assessment, for the third quarter we reported revenue growth of 7.8%, indicating the value to our long-standing insurance customers. Our industry standard insurance programs grew 5.1% in the quarter reflecting our 2013 invoices, which were effective January 1.

Our property specific information revenue increased 17.2% in the quarter. This increase was from new sales and higher volumes from certain customers as they commit to expanded long-term contracts as well as incremental revenue contributions due to the exploration of the revenue sharing agreement with a technology provider in the fourth quarter 2012.

Innovation is also an important component of our heritage business. We continue to work closely with our customers to innovate around international solutions and enhanced predictive analytics and commercial real estate solutions building on our P&C expertise.

EBITDA for the third quarter was $202.9 million as outlined in table 3 of our press release. EBITDA increased 10.9% for the quarter and our EBITDA margin was 46.3%. As Scott mentioned, we are eager to continue our investment program and are focused on doing that while maintaining a strong margin profile. We intend to accelerate our investment in aerial imagery in the fourth quarter which will likely have a P&L impact of about $10 million.

The margins in Decision Analytics were 41.4% in the third quarter 2013 versus 40.9% in third quarter 2012. The margin in the quarter reflects good cost management even as revenue growth decelerated in the quarter. We continue to make the necessary investments in business to support our innovation agenda.

In the quarter our Risk Assessment margins were 55.1% versus 54.6% in the third quarter of 2012. Our margins were helped in the quarter by good cost management and natural scale in the business.

We told you at the beginning of the year that we expected our 2013 EBITDA to be flat to modestly down compared to 2012. Based on the investments discussed above and spending to support ongoing and future customer contracts margins may be down up to 100 basis points.

The net-net of all of this is that we still feel confident that we will be towards the upper end of the 43% to 45% EBITDA margin range in 2013 and will continue to drive EBITDA and free cash flow growth. You can expect in 2014 and forward that we will continue to invest in new initiatives and accelerate them, as appropriate, which will likely keep our margins in the current range.

Our interest expense was up $0.6 million in the third quarter versus the respective period in 2012. This increase was due to higher debt balances taken on -- during 2012 related to our acquisitions. We ended the third quarter with total debt of about $1.3 billion and no outstanding revolver borrowings. The total balance reflects the repayment in the quarter of about $100 million of our long-term private placement debt in August 2013. At quarter end we also repaid an additional $35 million in long-term private placement debt.

Our reported tax rate was 36.2% in the quarter. As discussed over the past several quarters we've been working actively on our tax planning strategies. In the third quarter we again saw a one-time benefit resulting from those efforts. We now expect the tax rate to be a little below 37% for the full year 2013; we expect the normalized rate to be about 38% for 2014 and forward.

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 less income tax effect on that amortization.

Our adjusted net income increased 15% to $106 million for the quarter. Adjusted EPS on a fully diluted basis was $0.62 for the quarter, an increase of 14.8%. The average diluted share count was 172.2 million shares in the quarter and also at quarter end. In 3Q we purchased about 381,000 shares for $24.4 million. We had about $282 million left under our authorization at September 30.

Our share repurchase program has been successful today generating annualized IRRs of over 25%. For 2013 we continue to anticipate at a minimum buying shares to offset dilution.

Turning to our balance sheet, as of September 30, 2013, our cash and cash equivalents were $180.2 million. Total debt, both long-term and short-term was about $1.3 billion. As I mentioned, all of the debt balance reflects repayments in the quarter. Today our incremental debt capacity is over $1 billion and will grow with our EBITDA and free cash flow.

Also just as -- after the quarter we upsized our credit facility to $975 million of commitments, all of which is undrawn and available for general corporate purposes including M&A. Our debt to pro forma EBITDA at September 30 was 1.7 times below our steady-state target. As you know, we were willing to temporarily go above our long-term target of two times debt to EBITDA to take advantage of unique opportunities because our free cash flow is strong and allows us to de-lever quickly.

Year to date in 2013 free cash flow, which we define as cash from operations less capital expenditures, was $271.6 million, an increase of about $7.4 million or 2.8% versus the first nine months of 2012. Our capital expenditures were 9.1% of revenue year to date in 2013. Free cash flow generated represented about 47.8% of EBITDA in the first nine months of 2013. And adjusted for the timing of certain tax benefits mentioned previously, free cash flow represented 54.1% of EBITDA.

As we think about capital spending for 2013 we are now expecting $160 million for the full year, including about $30 million of investment initiative spending. We have increased our expectations for capital expenditures due to business opportunities as well as some timing for multi-year hardware and software purchases to support the growth of our business.

As you think about your models for the full year 2013, we still anticipate amortization of intangibles of about $64 million. Fixed asset depreciation and amortization of about $72 million and now a tax rate below 37%. We aim to keep share count flat for our repurchase program. And at current debt balances our quarterly interest expense is about $18 million.

Overall revenue growth remains solid, margins strong and we're innovating for the long-term. With that I will ask the operator to open up the line for questions.

Tim McHugh, William Blair & Company.

First, I guess I wanted to ask about the healthcare business and just I guess -- I apologize if I missed it, but just to make sure I heard it correctly. The weakness was mainly in RQI and it was isolated to four main customers, is that correct?

Tim, this is Scott. Yes, that is correct. Basically all of the difference between our original expectations and where the quarter came out were a function of events at four customers and in all cases that was related to RQI.

Did you trade off lower price for more volume at each of those customers or was --?

No, no. In the comments I made upfront, Tim, I said that of the four, three of them were slowdowns in terms of implementation or ramping. One of them was because we traded off price for longer-term commitments.

Okay. And do you have any sense for why the volumes slowed down I guess at those customers?

A lot of it has to do with the ability to get implemented and the ability to get implemented is not always fully in our control.

So these are new -- these are not existing customers that slowed down from what you saw last year necessarily, these were new customers that didn't add as much (inaudible)?

Well, one thing to bear in mind about our business, Tim, is that we have a very healthy mix of new business with new parts of an existing customer as well as absolutely new customers. And so you actually have those effects inside of what was happening. In other words, an existing customer which is trying to implement in a different part of their operation, that actually shows up in some of those cases that I was just mentioning.

So, I guess if we wanted to look, is there any -- in trying to understand, was there any competitive impact and/or was there any signs that the customers are less interested or demand is less for these solutions?

No to both questions.

Okay. And then just to follow-up, did I -- on the margin side was 100 basis points for the -- was that for -- in terms of margins being down perhaps as much as that. Was that for that year or for --?

Correct, yes, it was for a year.

Okay. So obviously an even bigger decline implied for the fourth quarter?

Correct.

Okay, thank you.

Andrew Steinerman, JPMorgan.

I wanted to also ask about Revenue Quality Intelligence, the RQI unit. This unit primarily serves Medicare Advantage plans optimizing reimbursements and such. And when you look at the headlines for Medicare Advantage plans at places like United Health, it seems like Medicare Advantage plans themselves have some headwinds. Do you think that has anything to do with what you described in the Verisk Health business?

Yes, Andrew, this is Scott. I don't actually. And you are right about those headlines and we are aware of what is going on in the space. But the fundamental fact of our situation remains that we are still a relatively small player inside of this world. And so, our opportunity is ahead of us and it really is centered upon building out our business and acquiring business with a number of plans that we don't even work with today.

And so, yes, there are the dynamics of what is going on inside of the category. Although I will say that it remains the case that Medicare Advantage plans are still highly incented to get after precise measurement of their performance, both cost and quality, since their reimbursement hangs upon it so deeply. And that is the category that we are providing here.

So, no, I don't think that there is really any effect in what happened in this quarter, nor will there be at least in the near-term future because our opportunity is essentially to take more space starting from a relatively small position.

All right. And you think these three clients will be implemented soon, right?

They are -- we believe that all of them are in the process of moving towards contracting with us and/or expanding their business with us.

Excellent. Thanks for taking the time.

James Friedman, SIG.

So, Scott, I had a couple of questions. Up front you had described some of the innovation initiatives related to -- one you mentioned related to pooled healthcare fraud.

Right.

Yes, so maybe if you could help us to contemplate -- it seemed important, potentially important that you have payers that are joining that initiative. If you could help us to understand how that rolls out and the magnitude of it.

Right, so first with respect to the roll out. A fundamental fact is that a lot of the fraud, waste and abuse that goes on in healthcare is actually perpetrated by providers. And when you take that perspective then immediately your frame on trying to get after this becomes a somewhat local one, because you're actually trying to diligence providers and the way they interact with payers more on a market-by-market basis.

And so, the way that we have gotten started with this is in the first phase of this we have two national players who have come in, but they have come in only for certain localities. And so, the roll out is going to take two forms. One is hope -- we expect that they will bring more and more of their localities into the pooled data initiative. And then secondly, more payers will enter into the initiative.

And so, just to kind of give you a sense of kind of the scale of all of this, with the providers that we started with we are dealing with a relatively small fraction of their total business is inside of what we are doing today. And the next wave of payers to come in, we would expect it to be on the order of kind of three to five additional sorts of plans. And that sort of pays the bill over the course of 2000 -- rest of 2013 and into 2014 is kind of what we are looking for.

So it does grow -- it is not growing linearly, it will be much more than that. And there is the network effect of having more and more payers in the process. So that is the way we think it will grow.

Okay, that sounds exciting. And then switching gears on the aerial imaging side. Mark, you had mentioned $10 million incremental investments. Is that -- right, so are you putting the infrastructure into database the images? Is it the procurement or the infrastructure to get those images? Where is that $10 million going?

Sure. So let me describe the -- the images are one thing, obviously a lot of people have pictures, but what we are actually trying to do is go one step beyond that and from those pictures drive data through computer vision actually creating what is specific measurements of roofs and homes and information that can be used for both claims and underwriting in the P&C space.

We have been on this agenda now for over a year and we have built out the infrastructure from the standpoint of the technology, the data center and the servers. However, as you actually start to collect and aggregate data in the form of images, that needs to be expensed, it's not a CapEx item. So we try to call out some of the P&L impact associated with that initiative and there is a bigger chunk in the fourth quarter, that is what I was trying to describe there in the $10 million.

Okay, and then the last question. If you look at both of these, should we view them, between pooled health and aerial imagery, as long-term revenue objectives or are we going to see some waterfall sooner potentially next year?

We definitely expect revenue from both in 2014, absolutely.

Okay, thank you.

Joseph Foresi, Janney Capital Markets.

This is Jeff Rossetti in for Joe. Thanks for taking my question. I'm just wondering if you can provide some additional color on healthcare within payment accuracy and enterprise analytics, maybe how those businesses performed excluding RQI?

Let me take that one, this is Mark. The general theme is they've performed well. I would tell you that the bigger growth in the opportunity, at least recently, has been with RQI and that is where we have seen some big customer contracts. I think the underlying theme around payment accuracy, which is the fraud and abuse case, is very strong. And we continue to have nice ramp in customers and volumes.

Although as the business gets larger it is tough to grow at those same percentage rates. So what we've seen is growth extension and the opportunity to continue to add dollars, but the dollars are on a bigger base so the percentages are lower. From an EA, which we refer to as enterprise analytics, side of things a little more competition in this space.

I think we see opportunities there that extend beyond what as providers -- excuse me, extend beyond what are the payers and into the provider space. And we're ramping up in spending and investing there with the opportunity to kind of extend the market opportunity as what is I will call it population management or the world of what we do in enterprise analytics can be (inaudible) applied to a shifting set of risk potentially inside of the healthcare space as providers probably take on some more risk in the future.

And I will just add to that a very pleasing fact for us is that we now have a material fraction of all of the ACOs which have been launched to date as customers for our EA division, which is a really, really nice place to sit.

Okay, thanks. And just one follow-up. Mark, I apologize if I missed it. Did you say there was any change to your 2013 investment plans and innovation or is it still tracking at around $90 million?

So I think what we tried to describe at the other part was -- and this is more of a CapEx discussion, then I will double back into the P&L. Our CapEx is higher right now; I want to at least give a little color and clarity on that. And inside that I think at least $10 million additional has been added. So now we are at about $30 million inside that CapEx because of these invest initiatives.

And some of that additional CapEx is really just because of operational needs to get bigger, whether it is around facilities or it is just around computing power, that has been the focus of some additional CapEx.

I think that answered your question. If you are more on the P&L side I'm happy to go into a little deeper dive there. But what we tried to reflect inside of the up to 100 bps is some of the expense that we would incur resulting from the invest initiatives, which are more than $90 million today from what I will call a P&L perspective.

Okay, thanks. I appreciate it.

Suzanne Stein, Morgan Stanley.

I know you have been asked this question a number of different ways, and I'm not sure that I completely understand this. So how significant were the pricing concessions? Because maybe I'm not thinking about this right, but if part of the disappointment in health in the quarter was related to delays in transactional volume, and I think you mentioned that was the case with three of the four big customers. Then why aren't you expecting growth next year to be higher than mid-teens?

I mean is the real underlying organic growth in healthcare now actually lower just given that that mid-teens number include some of these catch-up revenue?

Yes, it's not -- no, there is not a catch up effect here. So I'm not quite sure I am tracking your question, but let me say it the way that we see it and understand it. So we made some trade-offs in the third quarter with respect to price, which showed up in our third-quarter results, will show up in our fourth quarter results. And will have the effect of relating to transaction volumes in 2014, 2015 and 2016 in particular.

Then separately there are customers that we are finding are intending to be our customers, but the rate at which they are moving into being a part of our customer set is lower than we had originally thought it would be. And that applies in the quarter. But also as we try to think about where the business is going to be in 2014 we are seeing some of that same effect.

And as I think you know, a large fraction of what we do in healthcare, about 70% of it is transactional as opposed to the rest of Verisk, which is about 70% subscription and recurrent. And so, that which we don't get in 2013 it doesn't just roll over into 2014.

Okay and then separately, when do you expect mortgage to bottom? And then are you going to continue breaking out mortgage within the financial segment going forward once Argus is brought into organic?

Well, I'm sure that we would -- I'm not on the point about the specifically what our reporting looks like, but certainly we will continue to comment on mortgage just because mortgage is a meaningful part of what we are doing in financial services.

With respect to the bottoming you have got to look at two things. One is what is happening with respect to mortgage origination volumes and there, according to the MBA, the expectations for 2014 is that it will be a somewhat softer market than 2013. And then the other piece is cycling through the forensic piece. And our view is we haven't quite gotten to the bottom yet but we are moving towards it.

Okay, great, thank you.

Paul Ginocchio, Deutsche Bank.

Just another question on healthcare. Just it looks like your fourth-quarter -- or your guidance for 2013 would imply fourth-quarter healthcare revenue growth would be zero to 6%. Is that what -- is that the right implication?

And then on 2014, I would have just thought that in trading pricing for volume you would start to see that tick up in 2014, so why -- maybe just one more point of clarification on why we are not kind of reaccelerating that towards that 20%? Then a quick final one on the margin. Are we flat in 2014 from 100 basis points down in 2013? Thanks.

Okay so let me take the healthcare question. So first of all, in the fourth quarter you had talked about a zero to 6% range. We think we are at the higher end of that range, but yes. Again, the slow down on the ramp up is in effect which doesn't happen at just one moment in time.

In other words we are trying to be very clear and very thoughtful about what we see happening across the customer base, existing customers as well as prospects, the ramping up at existing customers as well as prospects. And so, that effect is at work in 2014 as well as 2013. And then, Mark, do you just want to talk about the margin question for a moment?

Yes, when I was referring to the 100 bps I was really referring to full-year 2013. I think we continue to have a view that we will be that high end of the range of 43 to 45 as we roll into 2014 and beyond.

Okay, great. Thank you.

Manav Patnaik, Barclays.

Just one on healthcare for me as well. But the impact -- I guess the pricing impact on that one customer, I'm just trying to understand like can we see more of that sort of trade off that you are making on additional customers down the road that could have a similar impact?

I would say that it is possible. What happened in this case was very specific to the individual customer. And -- but we are also paying a lot of attention to price realization in the category. And again, we are still sort of the -- relatively speaking the new kid on the block in healthcare generally. In 2010 we did about $55 million of healthcare and you know where we are now.

So our position is one that is emerging relatively quickly, it is in a category where a lot of the product today tends to be transactional rather than long-term subscription. So we are working very hard to secure that business. But it is also the case that the customers themselves are going to have a view about exactly how rapidly they are looking to grow their own books of business and how rapidly they are looking to grow their engagement with us. And so those are essentially the moving piece parts.

And in the middle of all of that our goal is to become an increasingly relevant part of what it is that they do. So certainly if there were opportunities to trade off price with volume we would take a look at those because we want to be a leader. And this is a moment where we are introduced to new customers that we haven't worked with before and we are expanding relationships with existing accounts and all of that is -- it is very dynamic and we are open to what is the right way to go about optimizing that going forward.

Okay, fair enough. And then I guess just within the healthcare space as well, and in line with your commentary around an active M&A pipeline. Can you maybe talk specifically on how you see your mix shifting towards maybe a little more M&A now that you have been a couple years without doing much in that space?

Yes. Well, as you know, 2012 was actually a very active year for us in M&A. So there was a little bit of we needed to fulfill our commitments with respect to our leverage and we accomplished that. But otherwise we remain as active in the M&A process as we have ever been.

We -- and I would just underline that we continue to be thoughtful about what we think is the right asset and we are certainly looking hard at what are fair valuations. I think it is fair to say that in this time of relatively cheap money valuations have tended to move up. There have been several transactions this year around assets that from the headline level at least you would've said, gee, isn't that really logical for Verisk.

But as we looked at them we thought very long and hard about valuation and what we thought was the right way to use our shareholders' money and in some cases took a pass. But we are as active as ever and we remain very committed to the M&A agenda as part of long-term value creation here.

Okay and just, Mark, finally on the mortgage side, what is the mix between forensic and the front-end piece? And just to clarify, in your comments you said that the front end -- the front-end was down as much as the market was?

That is correct. So what we have seen is at one point the forensic was as much as 60% of the business. I think we are kind of trending towards that 50-50 at this point. And to clarify, yes, we have seen a lower or lighter decline on the forensic side. And with regard to the front end of the business, which is more closely tied to originations it was kind of down consistent with what has been a drop in the overall market in the number of originations there.

All right, thanks a lot, guys.

(Operator Instructions). David Togut, Evercore Partners.

Could you give us a sense of, Scott, of the performance of some of your acquisitions in Revenue Quality Intelligence? That seems to be the area within healthcare where you have been most active from an M&A standpoint in particular, MediConnect. As you look at the properties you have acquired over the last couple years, have they performed about in line with your buy plan?

They have, yes. And one of the things that we talked about a couple of quarters ago -- actually when we were characterizing MediConnect upfront -- was that we thought that something unique would happen when we put MediConnect together with the assets of what we used to call HRP. Because essentially we were now sort of fulfilling a value chain where it began with chart abstraction and ends with the analytics to support the payer in making their argument for their cost and quality outcomes.

And so, we had -- we were putting all those assets together. And in fact what we saw over the course, particularly of third and fourth quarter 2012 and first and second quarter of 2013 was that some demand was essentially liberated by virtue of our ability to provide that end-to-end solution and you certainly saw that and our results and in the substantial organic growth that took place there.

That effect continues to occur and that is why we believe that we are going to have a very healthy level of growth in the healthcare business next year. But there was sort of a moment in time response to a capability that just was not there for us prior to the two assets coming together. And each of them individually has continued to do well; MediConnect has very much been operating according to plan.

Good. And then just as a quick follow-up, historically you don't provide growth rates for the three segments within healthcare. But in light of the slowdown this quarter, can you give us just some broad ranges on growth for enterprise analytics, payment accuracy and revenue and quality intelligence?

This is Mark. I mean I think we tried to characterize earlier the nature of the growth there and it has been primarily driven by some of the RQI. The other two businesses have continued to perform nicely, but not at the levels of RQI.

So all three businesses actually grew (multiple speakers) healthcare in the quarter?

All businesses were strong. As we kind of think about the businesses we think there are opportunities across the board, yes.

Okay. Thank you very much.

Bill Clark, KBW.

Just one more on healthcare. How long is the typical implementation in RQI? So if you get those three customers locked in, how long would it normally take for us to see a meaningful contribution to the top-line there?

It is sort of weeks to months. So it's -- and it all depends on -- in many ways it actually depends on the nature of the customers' operations. But think of it as several weeks to sort of a low count in terms of number of months.

Okay, thank you.

Suzanne Stein, Morgan Stanley.

In the past you guys talked about seasonality in the healthcare business. Is there anything we should be thinking about as we model healthcare for next year?

I think the one thing that we're trying to do so we get a little bit away from some of the seasonality is we have tried to work with our customers so there wouldn't be quite as much kind of second half demand so the opportunity and their needs are spread more broadly across the entire year.

I think we have been somewhat successful there, but I think you're going to continue to see more in the second half of the year. Typically that was in that 60% to 70% range. So hopefully we are trending towards the lower percentage there as we think about that in the future.

At this time there are no further questions in queue. I will now turn the call back over to Scott for closing remarks.

Okay, well, we appreciate everybody being with us for the call, we appreciate all the questions and we certainly understand the interest in the healthcare part of our business. We remain focused on making it a really very strong and important part of Verisk, it is a long march but one in which we are very confident.

Are also very excited about a lot of other things happening in our business and the agenda remains focused on innovation. And we believe that we are becoming an increasingly strong Company with respect to innovation and growth. And so, we look forward to being with you again next quarter and thanks for your time today.

Ladies and gentlemen, this does conclude today's Verisk Analytics third-quarter 2013 earnings results conference call. Thank you for your participation. You may now disconnect.