Verisk Analytics Inc (VRSK) 2014 Q1 法說會逐字稿

Good day, everyone, and welcome to the Verisk Analytics first-quarter 2014 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 Senior Vice President, Treasurer, and Chief Knowledge Officer, Miss Eva Huston. Miss Huston, please go ahead.

Thank you, Shirley, and good morning to everyone. We appreciate you joining us today for discussion of our first-quarter 2014 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 up the call for your questions.

All numbers we discuss today, unless stated otherwise, will reflect continuing operations and exclude the results from Interthinx, our mortgage services business, which we sold in March. Interthinx is classified as discontinued operations in this quarter and previous periods. In our 10-Q filings, revenue is reported from continuing operations only, but EBITDA is shown including Interthinx and the related gain on sale, per the SEC requirement. In our press release, we report EBITDA from continuing operations to assist you in your analysis.

As you will recall, last quarter we included in the back of our press release a reconciliation of continuing operations to the total as well as the quarterly detail for 2012 and 2013 excluding Interthinx. 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 29, 2014 on our website and by dial-in.

Finally, as set forth in more detail in yesterday'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, everybody. Our first-quarter revenue growth was good, driven by very strong performance in our insurance units. Our innovation and analytic agenda is active in all of our verticals, and I'm very confident it will lead to new solutions for our customers and that these investments will deliver good returns over time.

You can see some impact of these investments in our margins this quarter, although our margins continue to place Verisk in an elite group of companies. We consider our organic growth rate to be the single-best measure of our vitality as an organization. Over the course of the last couple of years, we have improved our mix of assets in support of continued organic growth.

In particular, we divested our mortgage services assets and acquired Argus, shifting our focus from the challenged mortgage market to the expanding global payments market. In addition, we have added healthcare assets that align with the fundamental trend toward improved efficiency in healthcare spend in both the government and private markets. We remain focused on making sure our healthcare business delivers excellence.

In February, we successfully concluded the Medicare Advantage review season. Ensuring we deliver the results our customers expected in the form of reimbursement from Medicare came with a cost to Verisk, which you see in the margins for the quarter. We did the right thing for our customers in the fourth and first quarters and believe our relationships with them are stronger for the effort. We continue to make progress in demand planning with our healthcare customers, and we are reassured by these positive customer interactions and continue to expect mid-teens revenue growth for the full year 2014.

On the inorganic side, we remain excited about the opportunity to add EagleView Technologies, or EVT, to our existing solution sets. We are also active in evaluating additional opportunities to align with our strategic vision and focus on strong organic growth over time. We continue to run the business with a long-term focus, while remaining aware of the need to execute every day.

The data analytic mindset informs our strategic thinking as well as our approach to solving the immediate challenges our customers face. Our approach to managing the business is well aligned with our innovation agenda, as innovation works in long cycles. We will continue to invest prudently in order to drive both top-line and free-cash-flow growth over time. Our twin goals of organic growth through innovation and operating with efficiency remain key focal points for the entire Verisk management team.

As you know, on January 14, we announced the signing of an agreement to acquire EVT, who are a leader in imagery analytics, and they offer solutions in the property and casualty, contractor, government, and commercial spaces. On March 28, we received a request for additional information from the FTC. We are responding to this second request and currently expect to close our acquisition during the third quarter of 2014.

As we have stated, our strategy is to allocate capital to the highest return opportunities for shareholders, and EVT is one of those opportunities. The business has grown strongly, leveraging the foundation of the government and municipality business into new markets in insurance and other commercial sectors. And, we have significant opportunity to continue to grow the business, both in the United States, and over time, internationally.

We continue to evaluate additional M&A opportunities, as we remain focused on our core principle of creating shareholder value through innovation, discipline, and execution. We have capacity for additional acquisitions that meet our strategic agenda. We also have continued to repurchase our stock, a sign of our confidence in the future and in our capital capacity.

We talked to you last quarter about the number of ideas coming forward from our business units for creating new solutions and enhancing existing ones. These initiatives are moving forward and we continue to maintain strong margins while doing so. We also continue to spend to ensure that our current solutions remain excellent, including re-platforming initiatives in areas such as catastrophe modeling, repair-cost estimating, P&C underwriting, and healthcare. We still expect margins to be flattish for the year, with strength building in the second half, as is typical.

In the first quarter of 2014, we delivered good overall performance, with total organic revenue growth of about 9% and diluted adjusted EPS growth of about 6%. EBITDA margin from continuing operations was about 45% in the quarter. We are focused on delivering value to our shareholders, and we remain disciplined in our use of capital.

As I mentioned earlier, we 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.

In the quarter, we returned capital to our shareholders through stock repurchases of about $89 million. Our remaining authorization, at the end of the quarter, was about $77 million. We will continue to use our authorization, consistent with our capital allocation strategy, as previously outlined.

And with that, let me turn it over to Mark to cover our financial results in more detail.

Thanks, Scott. In the first quarter, total revenue grew 8.7%. For the first quarter, our decision analytics segment delivered 10.4% revenue growth. Growth in the quarter was driven by strong performance in financial services and insurance.

Our decision analytics insurance revenue grew 11.8% in the first quarter. The increase was driven by strong growth in loss quantification and catastrophe modeling solutions. Underwriting growth in the quarter was good and claims solutions also contributed. Overall revenue growth was driven by the increased adoption of existing and new solutions.

In financial services, we were pleased to see growth of 21.6% in the quarter. The growth outlook at Argus remains positive, including through international expansion, additional penetration of existing customers, and partnering opportunities, in particular, related to advertising effectiveness with traditional and new media companies. We continue to expect financial services to grow at least mid-teens in 2014.

In the healthcare vertical, revenue in the first quarter grew 8.2%, an acceleration versus last quarter, led by growth in Medicare Advantage-related solutions. As you know, there is some seasonality in the business, which will relate to the second-half review season for Medicare Advantage plans. So, looking at half years, when comparing to the prior year, is generally more relevant than comparisons on a per-quarter basis.

As we discussed with you last quarter, and at Investor Day, 2013 Medicare Advantage season ran through February of 2014. So, some of the challenges we faced in late 2013 continued into the first quarter and impacted margins. We continue to work with our customers to jointly improve demand planning and expect an improvement in 2014. We still expect the category to see mid-teens revenue growth in the full year 2014.

In the specialized markets category, revenue declined 1% in the first quarter. Good growth in the quarter in environmental health and safety, and commercial weather and climate analytics, were more than offset by lower activity related to government sector customers.

Turning to risk assessment, for the first quarter, we reported revenue growth of 6.4%, indicating the value to our long-standing insurance customers. Our industry standard insurance programs grew revenue 6.3% in the quarter. This reflects our 2014 invoices, which were effective January 1.

In addition, we saw a contribution to growth from newly adopted solutions, such as predictive modeling, electronic rating content and workers' comp solutions. We also had an above-average amount of transactional revenue in the quarter, which we would expect not to recur at the same level for the rest of the year.

Our property-specific rating and underwriting information revenue increased 6.5% in the quarter. This increase was in the form of new sales, including those resulting in higher committed volumes and contracts transitioning transactional revenue to higher, longer-term subscription-type commitments. EBITDA from continuing operations for the first quarter increased to 3.5% to $182.8 million, and our EBITDA margin from continuing operations was 44.6%.

There was some carryover spending in the first quarter related to Medicare Advantage busy season, which ran through mid-February. This is a continuation of the additional spending to deliver for our customers that we had discussed with you last quarter. As I mentioned earlier, we continue to work to execute on our demand-planning initiatives with our customers.

The margins in decision analytics were 36.2% in the first quarter 2014, versus 40.4% in the first quarter 2013. The lower margin was primarily the result of increased cost in our healthcare business, as well as some investments to support our innovation agenda, partially offset by revenue growth in this segment. As Scott mentioned, the costs in our healthcare segment allowed us to meet customer needs in the short term, while building long-term relationship success as we work to scale our operations.

In the quarter, our risk assessment margins were 57.5%, versus 56.4% in the first quarter of 2013. Our margins were advanced in the quarter by revenue growth, good expense management, and lower pension costs. Our interest expense was down $2.7 million in the first quarter, versus the respective period in 2013, due to lower debt balances as a result of repayments made in 2013. As we discussed last quarter, we anticipate using our revolver and cash on hand, as well as proceeds from the sale of Interthinx, to fund the purchase of EVT.

Our reported effective tax rate was 35.7% for the quarter. The lower-than-expected tax rate was primarily due to a favorable state legislative change. Adjusted net income increased 3.6% to $93.3 million in the quarter. Adjusted EPS, on a fully diluted basis, was $0.55 for the quarter, an increase of 5.8%.

The average diluted share count was 170.4 million shares in the quarter. On March 31, 2014, our diluted share count was 169.8 shares. In the quarter, we repurchased about 1.4 million shares for $88.7 million.

At quarter end, we had about $76.5 million under our authorization left. Our share repurchase program has been successful to date, generating annualized IRRs of about 20%. For 2014, we continue to anticipate, at a minimum, buying shares to offset dilution.

Turning to our balance sheet, as of March 31, 2014, our cash and cash equivalents were $427.4 million, as a result of our seasonally strong first-quarter cash flow, as well as proceeds from the sale of our mortgage services business. Total debt, both short term and long term, was about $1.3 billion. Today, our incremental debt capacity is about $1 billion and will grow with our EBITDA and free cash flow.

Our debt-to-pro-forma EBITDA from continuing operations, as of March 31, was 1.7 times, below our steady-state target. With the acquisition of EVT and sale of Interthinx, we anticipate our leverage will rise to 2 times at the close of the transaction. Free cash flow, adjusted for two items that I'll discuss in a moment, grew 6.8%, compared with the prior period, to $212.9 million. This represented over 100% of EBITDA from continuing operations in the first three months of 2014, due in part to the typical prepayment for some of our solutions.

As a reminder, we define free cash flow as cash provided by operating activities less capital expenditures. To facilitate comparability to the prior period, we adjusted free cash flow for the timing of excess tax benefits from exercised stock options in the first quarter 2013 and for the sale of our mortgage services business this year.

Cash provided by operating activities, as reported, increased $41.6 million. This increase was the result of a $6.3 million increase generated by improved profitability of the business, a $2.7 million decrease in interest paid due to lower debt balances, a decrease of $33.7 million of taxes, and a $13.4 million from working capital and other balance sheet changes. This was partially offset by other outflows of about $14.5 million.

Our capital expenditures were 8.6% of revenue year to date 2014. We continue to expect about $147 million in CapEx for the full year. Greater use of capitalized software related to new solutions will modestly raise the capital intensity of our business when compared to historic levels, although capital expenditures in 2014 are expected to be lower than 2013. We aim to grow free cash flow at or above the level of our EBITDA growth.

As you think about your models for the full year 2014, we expect flattish margins for the full year, excluding Interthinx. You should expect to see that margin building in the second half of the year. As we remain focused on our innovation agenda, we are maintaining our longer-term view of margins in the 45% to 47% range. Amortization of intangibles is expected to be about $57 million, fixed-asset amortization and depreciation of about $75 million to $80 million, and an effective tax rate between 37.5% and 38%.

We aim to keep share count flat through our share repurchase program. At our current level of debt, our quarterly interest expense is about $18 million. Based upon the strength of our cash flow generation and the divestiture, the resulting current cash balances, we anticipate borrowing $300 million or less for the acquisition of EVT, depending on timing of the close and other events. After the close of the EVT transaction, we will update you.

Overall, we are pleased to report that our business is performing well. We have a nice mix of growth across multiple verticals, and we continue to invest with discipline for the future to continue strong organic growth.

I will turn the call back to Eva for a comment about Q&A.

Thanks, Mark. We appreciate all the interest in Verisk. Given the large number of analysts we now have covering us, we ask that you limit your questions to one and one follow up. This will give more people an opportunity to ask their questions.

With that, I'll ask the Operator to open up the line.

Our first question comes from Suzi Stein from Morgan Stanley.

Thanks. Could you help us understand how sustainable the acceleration of revenue growth in the insurance portion of decision analytics is? How much of that is transaction versus subscription? And, would you expect the level of growth, which had been quite a bit slower the last two quarters to stay at the double-digit rate that at that this quarter?

Good morning, Suzi, this is Mark. I think we feel pretty positive about the insurance segment. I'll call out a few things.

First of all, you know there's pretty good stability inside the industry standard programs, so we did have a little bit of a transactional blip, not significant, but that would probably not recur in the second quarter and beyond. But to further your point, our repair-cost estimating, loss quantification, and the catastrophe models, those businesses are performing very nicely. We see good activity.

And, to kind of follow up on your question, these are subscription type of businesses where people prepay for a year or more of service, so not a lot of transactional volume related to that. That's about wins. That's about new products. It's reasonably strong across the board.

Okay. And then, can you help us maybe with what you are doing with share repurchases? It looks like that at the pace that you are growing now, share repurchases will be finished, based of the authorization, maybe this quarter? But, does the EVT deal impact your view on how aggressive you will be with that?

Not really. We have confidence, Suzi, this is Scott, that we will complete the EVT transaction, and so we've already factored that into our thought process. We continue to believe that the share repurchase program is a very reasonable use of capital, and we talked to you about what our authorizations are.

We're always taking account of the facts on the ground, but no, I think we already know where we're at with respect to EVT. And, we will continue to manage the share repurchase program with the same goal as we've always had, which is at least to limit dilution and opportunistically to go beyond that.

Okay. Thank you.

Our next question comes from Tim McHugh from William Blair.

Yes, I was wondering if you could elaborate a little more on the Medicare Advantage inside of healthcare? And, when you talk about demand planning, can you get clients to do this earlier in the year? And I guess, what's been the hold back from them, I guess any more color on how you are going to change that process, and perhaps associated with that bottom [eight] adding additional parts of the process to improve the efficiency.

It's Scott here. To your basic question, yes, actually we do believe and we are engaged in exactly this, which is trying to be more -- for there to be more clarity and transparency in our relationship with our major customers on the Medicare Advantage side.

And, what helps us in that is that they actually have incentives to get to exactly the same place. Because, they have so much at stake in getting all of this right, they really want to know that they are important vendors, and I think that -- I know that we are an important vendor to an increasing number of the players. They want to know that their important vendors are going to be there for delivery.

And so, as both Mark and I said earlier in our comments, one of the things that happened was we were really focused on making sure the delivery up to the moment that the process timed out on February 14 was really good so that our customers got the result that they wanted. And, they did.

And, as a result of that, inside of these relationships, I think it's fair to say there is even more of a sense of confidence and mutual confidence, and I think that encourages our customers to be more planful with us, basically. It's good for all of us -- them and us. So, I think we're in a situation where it makes sense, and our customers know that it makes sense.

And is this -- you talked about margins still being flat for the year but building in the second half. I guess is this the current -- there's obviously a lot of factors, but how important is convincing clients to do this to you actually achieving those better margins in the second half of the year? It would appear like this is one of the big swing factors to getting margins back up?

I think you maybe tying together two things there a little too tightly, Tim. First of all, yes, we are focused on growing the business and working very hard at that. And obviously, there's a relationship between top-line growth and the bottom line.

But, as it relates to sort of the ebb and flow of our margins, if you look at us through time, we've typically been a back-half kind of a company for quite a few reasons. Some of it relates to seasonality. Some of it relates to the fact that we take a little bit of a step up, usually in the second quarter, with respect to our people costs.

And so, there's actually a lot of factors in there, and I actually -- it sounded like what you were trying to do was sort of tightly link those two observations. I think that's a little too tight. There's a lot of things that go on that describe our margin profile.

Okay. Thank you.

Our next question comes from Manav Patnaik from Barclays.

Thank you. Good morning, everybody. So just on the healthcare side real quickly, the additional costs this quarter in healthcare, was that more than what you had initially expected? I know you talked about it last quarter. I was just curious if that came in more than what you had initially planned? And, is basically the lack of that investment a big driver in terms of the second-half margin improvement?

I would not describe us as surprised by what happened. There is a process that we are working through with our customers that plays out over a long period of time. And, the fourth quarter of 2013 -- the fourth quarter of any year and the first quarter of the following year are both sort of peak moments inside of this process we were executing in the fourth quarter. And, we knew where things were. So no, I would not describe it as a surprise.

Okay. And, I guess just on the margin front is that -- is basically lack of that investment a big driver in terms of a big component, at least in terms of the margin improvement you're expecting in the second half?

Same answer that I just gave Tim, which is there is some seasonality inside of healthcare, and that is a contributing factor. But, there are a variety -- we, in general, have seen higher margins in the back half of the year for a whole variety of reasons.

Again, can you give any color on that request by the FTC on EVT? I know you said you responded, but anything else you can add there?

No, we're at work.

Okay. Thanks, guys.

Our next question comes from Andrew Jeffrey from SunTrust.

Thanks for taking the question. Good morning. I guess I want to ask the healthcare question a little bit differently, Scott. Recognizing that every Medicare Advantage season seems a little different, and you guys are learning as you go along here in this business, what gives you confidence that you can ultimately scale those customer costs?

Are we looking at something that's structural, recognizing there's seasonality, or is this -- do you get better every year you go through the process? Do you get more efficient? How do we think about that, longer term, in terms of being able to scale what is still a really big piece of your healthcare business?

Yes. There's really two parts to it. One is the synchronization of our capacity with our customers' actual demand. And, I'll just highlight that it's a little hard for them to know sometimes also actually. But, we do have opportunities to do a better job of that in close collaboration with our customers, and we've already spoken about that.

Secondly, there are opportunities to try to automate certain elements of the process overall, and we're certainly at work at those as well. So, it will really be a combination of both of those.

Okay. And, switching gears a little bit to Argus, Mark, one of the things I think you called out when you were going through the drivers was international expansion. How much of that business is rest of world now? And, what are the relative growth rates when you look at the 20%-plus organic you put up this quarter?

The Argus business, I think we've always described a couple different ways they grow. At the heart of it, they do what are kind of like an industry-standard study inside of either the card space and the debit card space, and we've talked about taking that platform and extending it into other geographies. About 30% of the business is that international flavor, and we think we can move out into a couple other regions and we see promise there.

With that industry-standard study -- I'll refer to it as that -- there have been solutions in specialized products that come with that because people want to dig deeper. So, that's the second act inside of a new country or a new set of customers in a different geography.

Separately, as we talk about growth, we've talked about things that have been very positive around the advertising effectiveness, and with partners, we start to make some nice progress there to work on the side of more traditional advertising and then the newer way media. So, those have been ways we've grown, and I think we've talked about at least mid-teens growth there. And that's, I'd say, a promising kind of third act inside of what we think is a very great business model that Argus has.

Okay. Thank you.

Our next question comes from Jeff Meuler from Baird.

Thank you. On the DA margins, can you help give us order of magnitude of how much of the year-over-year contraction is due to the Medicare Advantage side of things and how much of it is due to the investments in the innovation agenda?

Let me try to parse it a little bit. I think Scott has given a lot of this in broad terms. Some of the margin erosion that you are seeing from year to year, I would say more than half is healthcare related.

And then, I would say the other half is that innovation agenda and scaling up so that we were able to continue to satisfy and grow our businesses more broadly across that DA segment. So, a little more than half on healthcare; a little less than half on that innovation and re-platforming agenda that we're on.

Okay. And then, with the website relaunch, I couldn't help but notice it seems like you're featuring retail of the market more prominently. Can you talk about the go-to-market there -- how tailored the solutions are? And, if it's repurposing existing capabilities and data assets, or if at some point you may need to do something from the acquisition standpoint to move more aggressively into that market?

Well maybe -- taking your question back to front -- we do think there are some interesting assets out there with respect to retail. And, maybe just a word on why retail -- why interest in retail? Our method -- the kind of, what we do, works best when we are inside large markets that have a relatively large number of players that are relatively homogeneous, with respect to the way they operate and the problems they confront.

And, all of those statements apply to retail, so that's the fundamental basis for interest. We're already in the retail business. We already serve retailers.

And, most of the energy that you are picking up from us is our interest in trying to find a way to, essentially, deepen the analytics that retailers make use of as they try to run their businesses, to move from something, which is more sort of elegant reporting about what's going on, to something we're really making more forward-looking statements, and that's really the Verisk way. That's what we do is we capture more data, we deepen the analytic, and we move towards forward-looking statements for our customers.

And we're just on the march in that way inside of retail. So, that's the energy that you're picking up from us on that.

Okay. Thank you.

Our next question comes from Bill Warmington from Wells Fargo.

Good morning, everyone.

Good morning.

Back in March, CoreLogic acquired Marshall & Swift/Boeckh, and I wanted to ask whether that changes the competitive landscape for that piece of the business, with MSB with about 80% of underwriting, and Xactware with about 80% of claims, what happens next?

So, yes, thanks for the question, Bill. First of all, I just, without getting highly specific, I think the way that you sort of laid it out there and sort of the relativities on claims and underwriting, not really quite where we see it, first of all, just so you know. I'll also just say, at a high level, and then I'll kind of get a little bit more specific.

At a high level, we actually think the privileged position in all of this work is actually being deeply into the claims process because that's the -- where you observe the literal facts of loss. And, having a genuine understanding of loss is very important to making statements about potential future loss, which is a part of the underwriting process. We just have a view of the integration of those two businesses, the way they work together, and a view of where is the highest and driest and strongest place to stand, in order to create value for customers, so that's by way of context.

We really think that our case in this category it's really on us. In other words, we feel like we have great relationships with our customers and all the scope in the world to bring more value to them, and we feel like we have their full attention. Basically, therefore, it's up to us to be innovative and to be meeting their every need as they try to apply our tools.

But, we don't walk around feeling like the cap or the constraint on our growth opportunity is a competitive one. It's really on us. And, it's really a function of how well we execute our innovation agenda.

And then, is international expansion an opportunity that you think about for that business line?

Very definitely, and back to the earlier comments, especially in the whole area of estimatics, replacement and repair cost estimating, amplified by aerial imagery and all of the analytics around that, which fundamentally, have the effect of creating more automation inside of all of that. That whole combination feels to us like a business which has as much global potential as any that we've got inside of the Company.

Great. Thank you very much.

You're welcome.

Our next question comes from Andrew Steinerman from JPMorgan.

Hi, Mark, I wanted to follow up on your comment about the RA industry standards growth rate and getting influenced by above-average transactional revenues. I still would guess that, even when you take that out, this would be a year of acceleration for RA industry-standard growth. And then, the thinking there would be, while it's not a one-to-one relationship, I do assume that the 2012 acceleration of net written premiums does inform 2014 RA growth rates.

Is that still a fair way to think about it, when you take out the above-average transactional revenue growth that you were trying to call out for the first quarter?

Thanks for the question, Bill -- Andrew, I apologize. Sorry about that.

I just want to quickly draw a distinction. I think we've always talked about the value our customers see the overall invoice, so certainly premiums factor into it. I don't think 2014, which relates to 2012 premiums, was the foundation for a more substantial increase. I think we've kind of tried to keep this consistent with the value of our customers see. The process, the approach, remains unchanged.

What I will draw upon is, I think the innovation agenda that we have been discussing here is not just a decision analytics agenda, it's also inside of risk assessment. So, what we tried to call out is the predictive modeling solutions that we've now extended beyond personal auto into homeowners, even to commercial lines, we're starting to gain some traction.

We've tried to take some of our rating content, and we have created what is a completely automated approach for insurers to bring that content through electronic rating content into their solutions. That has been meaningful.

And finally, even inside of some of the workers' comp solutions that we are starting to put on the market, we are finding traction and that is contributing to that industry standard program growth for the year. So, some small but good signs of innovation on the risk assessment side as well as decision analytics.

I didn't quite catch -- how much should we think of the kind of growth rate without the element that you tried to call out -- the above-average transactional revenues in the first quarter?

Andrew, we're not going to get into that level of detail. I apologize, but I hope you appreciate we feel that, short of that transactional type of one-timer in the first quarter, we would expect a continuation into the remainder of the year, as you see risk assessment.

Perfect. Thank you.

Our next question comes from Hamzah Mazari from Credit Suisse.

Hi, this is Anj Singh dialing in for Hamzah. Thanks for taking my question. I was wondering if we could get an update on your M&A pipeline? Do you view the near- and mid-term pipeline as having more tuck-in acquisitions, or is there a probability of larger ones like EagleView?

Well, maybe I can go back to sort of the principle that we are working on, which is that it all sort of flows from our strategy. So, what we start with is a view of the verticals that we are serving and the mix of solutions that our customers are looking for. And fundamentally, the reason we engage in M&A is that if there are great solutions out there, which we feel we can amplify by tying them into what we already do, and if that's positive for our customers, that's really why we're on the M&A agenda.

So, we're proceeding from really a market-driven, customer-driven view of what's needed and wanted, and then how does our current portfolio stack up against that. So inside of that, we don't really start by filtering on size.

Even yesterday, we had a very deep session looking at a very large number of companies that are in our pipeline, and the filtering mechanism does not begin with size. It begins with relevance. And so, there's an openness to what it is that makes sense.

Having said that, one of the things that we have to give attention to is the integration of anything that we acquire. And so, I would say that all else equal, something which is a little bit smaller is a little bit easier to integrate. And so, that's always running in the back of our minds, but again, the point of departure is where are we strategically in the market, what do our customers need, and really size obviously gets consideration as we think about our capital structure and where we're at, at any given moment. But, it's down the road in terms of the thought process.

Okay, that's helpful. Thank you. And, as a quick follow up, are you still comfortable with the July closing that you'd outlined for EagleView?

Earlier in my comments, I said third quarter, and that's still where we are.

Understood. Thanks so much.

Our next question comes from James Friedman from SIG.

Hi, and thanks for taking my question. I'll ask a couple up front if I could. The first one is, was there any weather, Scott, that you might call out in the first-quarter results?

The second one is, Mark, you had articulated some of the costs that seasonally recur in second quarter -- maybe if you could refresh us on that?

And third, to go back to the healthcare question, Scott, did the first-quarter results come in -- first of all, congratulations on the acceleration in healthcare. But I want to ask, did the first-quarter results on the revenue come in consistent with your previously articulated expectation of mid-teens growth on the top line?

So, I know it's a lot up front, but the first on weather, the second on cost, and the third on health. Thank you.

I'll take the first and the third, and then if Mark can remember your second question, he'll address that one.

Weather is always in the mix of things that we're doing, but I would not call out weather as having particular explanatory power in terms of the first quarter. Meaning, there are always weather events, always. And, sometimes they fall in the first quarter, and sometimes in the third quarter. Some years a little bit more; some years a little bit less.

At any given moment, you can actually almost trace a line between events and claims volumes and how that relates to some of the things that we do by way of estimating. But overall, I would not call weather something that really has much explanatory power as it relates to the quarter. And more generally, there is the long sweep of what the weather is doing.

Actually, if you want to understand the impact of weather on the insurance business, for example, you actually have to look at two things. One is the nature of damage caused by weather, which to some extent -- meaning the intensity of the weather event itself -- the intensity and frequency of the weather event itself. And, there has been some trend towards increase.

But, what's actually even more important is the amount of insurable property and its proximity to where weather-driven events tend to occur. That actually has greater explanatory power. So, for example, Americans desire to live on the coast of Florida has a lot to do with the increase in hurricane losses through time, as well as what's happening with respect to hurricanes. So, I hope that's clear.

With respect to the healthcare question, no, we feel very comfortable observing the first quarter and reaffirming we are expecting mid-teens. So Mark, maybe you want to take on the second question.

Second quarter, if you recall the way we manage our compensation at Verisk, second quarter is kind of the introduction of salary increases. So, we have across the enterprise performance reviews, and salary increases are effective with the beginning of 2Q, so that's an uptick from 1Q.

What we also do, on April 1, is we provide and grant equity that's both in the combination of options as well as restricted stock for our senior team, and that amount would also hit second quarter. Obviously, four years ago, grant would come off, there's a little bit of ebbs and flows based upon an approach we have. If you're age 62, you accelerate best, but the future of that number is generally up a little bit and trends up.

The other thing that affects quarters is the nature of the healthcare business does have seasonality. The second half is stronger than the first half. This the Medicare Advantage plans go through that review process we described. That runs through Valentine's Day.

Second quarter is a little bit of a trough, and there is some variable costs associated with that, so as a result, you would think of the costs being generally down or in line with that top line. So, those are the three things that ebb and flow with regard to expenses in 2Q relative to 1Q.

Scott, Mark, Eva, thank you.

Our next question comes from Joe Foresi from Janney Capital Markets.

Hi, good morning. This is Jeff Rossetti on for Joe. If I could ask a question back on healthcare. Just wanted to see, as you target mid-teens growth, how do you expect some of the acceleration for revenue and quality versus population and payments?

We need the whole suite to be performing in order to achieve our goals. When you look at the way that our performance builds, and we've had a chance to share this with folks in forums like Investor Day, the cross-selling of our full suite is a big focal point for us, and it goes in all directions.

So, an RQID customer adopting payment accuracy solutions, a payment accuracy customer adopting enterprise analytic solutions, et cetera -- all those connections are meaningful to us. It's not that we focus on some and deemphasize others, they all matter.

Okay. And just maybe an update, going back to -- you mentioned the Analyst Day, just as drivers, I think you called out coverage expansion, just wanted to see if there was any updates on signings and the update on the product that was launched recently for ACOs, with respect to your quality suite?

I'm not quite sure I understand what you meant when you said coverage, but with respect to the ACO suite, we continue to make progress on that front. That's a very exciting part of our business.

Those of you who are familiar with healthcare know that, that is a very sort of nascent and emergent part of the healthcare mix. But we -- one of the leading indicators to us of our relevance in the space is our ability to do work with emerging ACOs, and we have a good team working on that, and so that's meaningful to us.

Okay. Thanks. I was referring to, on the question on the exchanges -- insurance exchanges being expansion of potential --?

I understand. We consider exchanges essentially another segment of customers, and we're on that, as we are on the other segments.

Thank you.

Our next question comes from Jeff Silber from BMO Capital Markets.

Thanks so much. Sorry to go back to healthcare, but your guidance for mid-teens growth in the unit implies some sizable acceleration from the 8% plus growth you saw the first quarter. Is that something we should expect to gradually see through the year? Or, do you think you'll finish the year at a much higher than the mid-teens rate in order to get there?

Let me come back to what we're trying to describe. I think we feel that from a capacity planning perspective we're making good progress. And Scott's highlighted this, but even with the way we think of our suites and our solutions, we are trending more towards focusing on the customer needs and what solutions plug in.

We were running the business a little bit more around the various product sets, and now we're working more closely with the what's the customer need, so it's a focus that is, I think, more directly attributable to customer as opposed to product. Inside that, across the board, the seasonal aspect of it is still that Medicare Advantage, so that does ramp the overall volumes towards the second half of the year.

So, just remember, it's a first half or second half as we always described. The second half being more on the 60% and maybe 40% on the front.

I would tell you though that the quarters, from a growth perspective, I don't see them as meaningful. I think we are looking for, yes, a growth in ramp from what is 8% up to mid-teens and that should be across the quarters.

Just for absolute clarity, ramping in a way that the average for the whole year is mid-teens, so you've done the math correctly.

Okay. That's helpful. And, going back to the EVT acquisition, can you remind us what milestones are needed before closing, and are these things that you're going to be disclosing publicly? Thanks.

Our next question comes from --

We just wanted to answer that question. So EVT -- pardon me -- principally what we're in is in the FTC review process, and we've commented on the fact that we got the second request. We're in that -- in the process of working through the second request right now, and that's pretty much it.

Our next question comes from Paul Ginocchio from Deutsche Bank.

Hi it's Adrienne Colby for Paul Ginocchio. I was wondering if you could comment on what the impact of the US government granting approval of allowing sale of high resolution satellite images would have on the EagleView acquisition and also any expected changes that would have on the competitive landscape?

Right. Thank you for the question. No impact. There remains a distinction between what can be gleaned from an image captured from the sky versus an image captured from a satellite.

And, without belaboring the technology, it's a different sensing mode on a satellite, than it is a camera in the belly of an airplane. And, the satellite is looking through the atmosphere in a way that the camera in the plane is not. And so, you start with that, and you have different properties in the image, and then beyond that, a lot of what applies as well is the ability to get a number of orthogonal and oblique images of the same structure. And, aerial imagery is advantaged in doing that in a way that satellite imagery is not.

Satellite imagery has advantages for sure, but as it relates to what we're trying to do, it's the kind of precision that one can get from an aerial image -- what are called the radiometric properties of the image -- are very significant in what we are looking to do. So, really no impact.

But I will say, also however, those of you who are going to be following our Company through time, as we try to mine aerial images there may be different modalities in which they're gathered. So, for example, all of the discussion about drones is interesting to us. And fundamentally, if there's a way to get the precise images that we're looking at in a more efficient way, ala a drone, that's actually good thing for us. We would be open to that.

Our next question comes from David Togut from Evercore.

Good morning, this is Rayna Kumar for David Togut. Could you please quantify your price increase this year and risk assessment?

We don't actually think of it that way. It's not even how we work on it really. I think that maybe there are some folks out there who are aware of our pricing algorithm, which has in it -- one of the terms of the algorithm is to reference industry premium volumes, and I can certainly understand where that would create an impression which is effectively there's a ratchet in the invoices that we are sending out year over year.

That's actually not the way that works. What we do is, we take account of the amount of value that we've added in the suite, so there's actually a great deal of work that goes on every year to have as much relevant and timely information inside of the underwriting rules, inside of the loss cost that we publish, and that is part of the work that we do each year. I will go back to what Mark said also, that inside of risk assessment there are new categories of solutions, and the growth there is really a function of adoption.

But, back to the industry standard programs that we've talked about in the past, it's not really about price. It's about value. It's about what did we do to improve the product.

Do you expect margin improvement in 2014 to occur in both your decision analytics business and your risk assessment business during the second half?

This is Mark. I think what we've tried to describe is the fact that we would be flattish for the full year 2014. That's an enterprise-wide view.

I think what you've also heard is that we did spend a little more inside healthcare satisfying some customers. So, there's probably a little bit more expansion in the DA side of things than the RA sided things. RA is, obviously, pretty special with regard to margins.

Again, we said we are a back-half company as it relates to margins generally.

Thank you.

Our next question comes from Andre Benjamin from Goldman Sachs.

Hi, good morning. I apologize in advance if this question was asked in some form, as I'm jumping on a bit late here. I'm sure -- I heard there were number of healthcare questions asked.

I was wondering if there was any specific color you could provide on how the individual businesses are doing, what the trends have been, even if it's just say a range as opposed to a percentage. I know there's a focus on cross-selling and selling at the needs of the customer, but it would be helpful to understand if there's a material difference between payment accuracy and RQI.

We haven't really broken it out in that way, and I'm not sure if you heard the comment before, but we really are very focused on all parts of the suite performing. Both because of the growth that can be contributed by the different elements of the suite, but as well, we believe that we actually become a more compelling partner to our customers the more that they actually make use of our full suite.

You all know that we have been at work for some time to make sure that we had commonality operating underneath the product platform with respect to data definition and rules warehousing. And, that remains our view. That it's sort of the -- that we really are greater than simply the sum of our parts, explicitly, and that is very much our view of the business and what matters and where we are at and where we are going.

Even understanding that you're going to market as a cohesive suite, are you seeing more requests or responsiveness to certain parts of the suite, or is that just not something you are willing to get into?

I think the measure for us is whether or not we can get into a deep dialogue with the leaders in the business and have something relevant to say across, essentially, all of their decisioning needs, and that is our focus. We work very hard to make sure that we can go out and have conversations, which are very broad, with our customers. And, I think we are encouraged by that, and I think that we feel we see the fruit of that, in terms of our enhanced standing with the name brand companies in the healthcare space.

Thank you.

You're welcome.

There are no further questions in queue. I will now turn the call back over to our presenters for any closing remarks.

Thank you. We would like to thank everyone for your interest and for joining us on our first-quarter earnings call today. We look forward to talking to, again, in the near future. Enjoy your day.

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