Verisk Analytics Inc (VRSK) 2016 Q1 法說會逐字稿

Good day, everyone, and welcome to Verisk Analytics first-quarter 2016 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 SVP and Treasurer, Ms. Eva Huston. Ms. Huston, please go ahead.

Thank you, Chris, and good morning to everybody. We appreciate you joining us today for discussion of our first-quarter 2016 financial results.

With me on the call this morning are Scott Stephenson, Chairman, 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.

Unless stated otherwise, all the results we discuss today will reflect the classification of the healthcare business to (technical difficulty) operations. The earnings release referenced on this call, as well as the associated 10-Q, can be found in the investor section of our website at 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 on our website and by dial in.

And 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.

And now, I will turn the call over to Scott.

Thanks, Eva. Good morning, all.

In the first quarter, we delivered strong overall results, with total revenue growth of 28%, EBITDA growth of 24%, and an increase in diluted adjusted EPS of 19%.

Organic revenue growth was 5%, and was 7% excluding the first-quarter 2015 nonrecurring project revenue at Argus and a one-time true-up of partner revenue this year in the Decision Analytics Insurance segment. Profitability remains strong, with total EBITDA margins of 50%.

We continue to be encouraged about the performance of our businesses in our key verticals of insurance, financial services, and energy. This quarter is a good start to the year, and we will look to build on these results.

On April 25, 2016, as you know, we announced the signing of a definitive agreement to sell the healthcare business to Veritas Capital for $820 million. We expect the sale to close by the end of the second quarter.

The returns we generated on the business reflect value creation for shareholders, with a pretax IRR of about 12%, through our ownership period, which began in 2004. One of our most important responsibilities is the careful stewardship of our shareholders' capital. We continually assess our assets and their productivity, as well as opportunities to deploy new capital in line with our strategic priorities.

Consistent with our capital allocation approach, we identified and evaluated a range of alternatives. We determined that we have better uses for the capital invested in the business and for any future capital, which would've been required to make the operations more Verisk-like.

Additionally, we believe that Management time should be directed to areas where we can of the most impact in driving shareholder returns. This transaction will allow us to focus on data analytics businesses in our key verticals, which are most closely aligned with our strategy, our distinctives, and global ambitions, and where we believe we can have the most value.

The majority of the proceeds will be allocated towards future acquisitions and repurchases, consistent with our long-term approach we've discussed with you in the past. We remain committed to our 2.5 times steady-state leverage. Pro forma for the sale of the healthcare business and related proceeds, at March 31, we would have been at that level. I'm glad to have found strong ownership for our healthcare business and very much wish the team continued success.

We go forward from here better aligned with the key distinctives, which mark excellent vertical data analytics businesses. We have higher margins, more stable revenue growth, less seasonality, a higher mix of subscription revenue, and stronger free cash flow conversion post this transaction. Overall, we look even more like the Verisk business model that we all value.

During the quarter, we returned capital to shareholders through the repurchase of $116 million of our stock. At March 31, 2016, we have $353 million remaining under our share repurchase authorization. In addition we remain active looking for strategic and financially sound tuck in acquisitions.

As you may have seen, we recently acquired Risk Intelligence Ireland, a leading provider of fraud detection compliance, risk control, and process automation services to the Irish insurance industry, which becomes part of our ISO solutions business. This acquisition advances our efforts to expand our insurance business beyond the United States.

We remain constructive on the outlook and expect acceleration in our combined insurance businesses and double-digit growth at Argus. Wood Mack continues to perform remarkably well in an environment which is extraordinarily difficult for our customers. The team is working very hard to achieve growth for the year, even as we acknowledge the macro environment continues to be challenging relative to historic norms.

In a recent achievement of note, Verisk was included in the Forbes list of America's Best Employers 2016. This follows our inclusion in the Forbes World's Most Innovative Companies list. Verisk is only one of 15 companies to appear on both lists.

We are working hard to attract and retain great talent as we continue to make progress fostering a culture of innovation. We apply that innovative thinking in working with our customers to find new solutions to their challenges by leveraging our unique data assets and methods. And I personally am inspired by the efforts of our people, and I think that shows through in the results we've been delivering. We are well-positioned to execute on our strategies and global ambitions in the future.

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

Thank you, Scott.

In the first quarter, we again delivered both revenue and EBITDA growth, while also investing for the future. Revenue grew 28.2%. Organic revenue grew 5% excluding recent acquisitions.

If you adjust for the $11 million nonrecurring project revenue in Argus in the first quarter 2015 and several million dollars of true-up revenue in Decision Analytics Insurance this year, organic revenue growth was 7% in the quarter. EBITDA grew 24%, to $248 million. EBITDA margins were 50.4% for the quarter.

Within the Decision Analytics segment, revenue grew 46.7%, and 4.8% in the first quarter, excluding acquisitions. Adjusting for the nonrecurring financial services project revenue last year and true-up insurance revenue this year, organic revenue growth in the segment was 8.5%. Revenue in the quarter was again driven by insurance.

Decision Analytics Insurance revenue grew 11.6% in the first quarter. The increase was led by strong growth in claims analytics solutions, with good growth in loss quantification, catastrophe modeling, and underwriting solutions in the quarter. Even excluding the $7 million of true-up revenue, growth in Decision Analytics Insurance was about 9%.

Financial services revenue decreased 19% in the quarter, and increased 17.7% after adjusting for last year's nonrecurring project revenue, with solid underlying demand for our core solutions and services, offset by prior-year project revenue $11 million, which did not recur in 2016.

Energy and specialized markets revenue grew by over 350%, including the recently acquired Wood Mackenzie, PCI, and Infield businesses. Organic revenue decline 3.6%, as growth in environmental health and safety solutions was offset by a decline in weather and climate analytics.

Wood Mack revenue in constant currency, excluding PCI and Infield, increased slightly in the first quarter 2016, and as reported, declined slightly when including effective purchase accounting. We expect pro forma constant currency revenue to be flat in the second quarter, as reported. As we think about the full-year outlook, as reported, we expect to be near flat. Also, as we move through the year, keep in mind that currency will have an impact on our reported results.

Risk Assessment revenue grew 5.2%, continuing to demonstrate the value of our long-standing insurance customers. Industry-standard insurance programs revenue grew 5.2%, reflecting our 2016 invoices, which were effective January 1 and continued contribution from newer solutions such as predictive models and electronic rating content. Our property-specific rating and underwriting information revenue increased, up 4.9% in the quarter. This increase was driven by higher committed volumes in our commercial underwriting business.

EBITDA increased 24% in the quarter, to $248 million, resulting in EBITDA margins of 50.4%. Decision Analytics EBITDA increased 40%, to $139 million in the quarter, as a result of acquisitions and profitable growth in the business. The EBITDA in Risk Assessment increased 8.3%, to $109 million, as a result revenue growth and good expense management.

Reported interest expense was $32 million in the quarter. Total debt was $3 billion at March 31, 2016. Our leverage at the end of first quarter was about 2.6 times. After the sale of the healthcare business, we expect to be at the 2.5-times leverage target ahead of plan.

Our reported effective tax rate was 31.7% for the quarter. Adjusted net income increased 26.1% to $127 million in the quarter. Adjusted EPS on a fully diluted basis was $0.75 for the quarter, an increase of 19%.

Discontinued operations includes about $0.03 related to healthcare operations and a negative $0.11 for a tax liability as a result of classifying healthcare business as discontinued ops. As a result, we reported discontinued operations adjusted EPS of a negative $0.08.

The average diluted share count was 171.5 million shares in the quarter. On March 31, 2016, our diluted share count was 170.9 million shares. For shares purchased in the quarter, the average price paid was $69.97. At March 31, 2016, the Company had about $353 million remaining under our share repurchase authorization. Our share repurchase program has been successful to date, generating annualized IRRs above our cost of capital.

Free cash flow increased 20% to $256 million for the first three months ended March 31, 2016, including Wood Mack. This represented 103.2% of EBITDA, as our first quarter is typically our strongest for free cash flow generation due to invoicing patterns. These numbers are all for continuing operations.

Growth in free cash flow is driven by improved profitability of our business and stable CapEx, partially offset by higher interest rates and fees related to the acquisition of Wood Mack. Capital expenditures increased 22.7%, to $25 million, for the three-month period ended March 31, 2016, driven in part by the addition of Wood Mack. CapEx was 5.1% of revenue.

We now expect to have CapEx of about $150 million to $155 million pro forma for the divestiture of the healthcare business. We continue to manage our capital intensity.

We are pleased with the announced agreement to sell the healthcare business and the opportunity to focus on our core competencies and our distinctives. The sales price of $820 million consists of $720 million in cash, a $100-million subordinated promissory note, and other contingent consideration.

As you saw on our 10-Q the note has an eight-year maturity and a 9% PIK interest rate. The contingent consideration, which is unrelated to the note, is tied to the future value of the healthcare business and provides upside to our sales price under certain conditions. We expect the deal to close by the end of the second quarter.

We anticipate the after-tax proceeds of approximately $675 million, of which about $600 million will be received at closing and the remainder on the repayment of the promissory note. The proto-sized tax amounts will be determined after we've all adjusted for the working capital. On an estimated after-tax byes basis, the IRR generated exceeds our cost of capital.

Of the cash proceeds, we expect that the majority will be allocated to our long-standing capital allocation priorities. In the near term, we intend to use the proceeds to repay our revolver drawings, but will then use that increased revolver capacity as opportunities arise for our long-term capital allocation plans.

While we manage the transition, some of the corporate costs to support the healthcare business will remain with Verisk. I'd like to thank all of our Verisk and Verisk Health Teams for the hard work that has gone into this transaction. We are excited for the future of Verisk, and we wish our colleagues at Verisk Health the very best as they move forward.

As you think about your models for 2016 on a continuing operations basis, we encourage you to review table 8 in last night's press release, which contains selected financial metrics for 2015 on a continuing operation basis by quarter. We expect that based upon current FX rates, there is about a $10-million impact to full-year revenue relative to where rates were at the start of the year. As FX is a component that has become more relevant to Verisk, we would look to provide more insight going forward.

For the full year 2016, we expect CapEx of about $150 million to $155 million, fixed asset depreciation amortization of about $132 million, and amortization of intangibles of about $95 million. Based upon our current debt balances, we expect interest expense to be around $123 million.

We estimate the tax rate to be in the range of 32% to 33%. The healthcare divestiture may help that tax rate a bit, but by less than 50 basis points, based upon the information we now have.

For the intangible amortization add back in the adjusted net income calculation, we will use 26% to reflect the tax rate applicable to our intangible assets. And finally, we expect the diluted weighted average share count of about 172 million shares before incremental repurchases. Overall, we are pleased with our plan for 2016 and excited about the go-forward financial profile of the Company. We are executing on our operational plans, and we are well-positioned for profitable growth in the future.

With that, I'll turn it back to Eva for comment before Q&A.

Thanks, Mark.

We appreciate all the interest in Verisk. Given the large number of analysts we have covering us, we ask that you limit your questions to one question and one follow up.

And with that, I will ask the operator to open up the line for questions.

(Operator Instructions)

Your first question comes from the line of Bill Warmington from Wells Fargo.

Good morning, everyone. Congratulations on selling the healthcare division and then also on crossing the 50% EBITDA margin threshold. And that's what my question is this morning is.

You've gone from a 43% to 45% range to a 45% to 47% range, and last -- at investor day, you talked about expanding margins over time. How should we think about that? Are you still committed to expanding the margins over time? And then also, how should we think about the quarterly margin progression throughout the year now that you don't have healthcare there?

Sure, this is Mark, Bill. Thank you for the earlier comments.

In the second quarter -- this is just the quarterly aspect, in response to your question. Second quarter, we do have our salary increases. A super majority of both merritt and promotional increases come in effective April 1, so that typically hurts us from a margin perspective as you progress through the year.

What we also do is we give out our equity awards. So what will happen is this year's equity awards will come in. The equity awards from four years ago will move out, because they're vested. So those two things will affect the rest of the year.

The other thing we always like to just remind, we continue to make progress, but we did, for the most part, have this talent realignment in Risk Assessment. So there's some staff that we are continuing to hire, and that will ramp up as we progress through the year. We did some hiring in first quarter, but probably still a little bit behind the levels we expect. So those are the couple of points I will call out.

The other thing that I think to your earlier question, remember, what we have is a business that's wonderfully scalable. It comes to how much investment we want to do, and we continue to talk about the opportunity to take advantage of that operating leverage. I don't think we see a lot of incremental investment relevant to revenues, so I think we have, over the long-term, an opportunity to continue to work on margins and move those in a positive direction.

Thank you for the insight.

Your next question comes from the line of Tim McHugh from William Blair. Your line is open.

Thanks. Just questions on the insurance vertical.

One, can you elaborate a little bit more on, you mentioned growth was led by the claims analytics part of Decision Analytics, which I would have thought of as the most mature part of that business, so what's driving that growth?

And then secondly, the true-up for -- I believe it was for Xactware, can you talk about that? And also from a margin perspective, does most of that revenue just flow through to the margin line? Just trying to understand how that impacted margins for the quarter.

Tim, it's Scott, and I'll take the first part of your question. There's something going on in claims, which actually is going on across many of the things we do in insurance, and that is, implicit in your question, we are well platformed. That is true. But what we've been doing is working to enhance the value in many cases by building around the platform, adding features which help the customers get more value out of what we're doing, and that's true not only on the claims side, but that's also true on the underwriting side, as well.

So it's really not anyone thing. It's actually very broadly-based. New products that bring, for example, more analytic acuity to trying to figure out within the claims flows which claims should really get the most attention because they represent the greatest dollar recovery opportunity for the customers, and that's just one example. The general story is, think of it embroidering on top of the platforms we've already got. And then Mark, maybe want to take the question about the true up?

Sure. Inside of our insurance businesses, we have a lot of licenses and partnerships, which combine an upfront amount, and then there's true-ups based upon how much our partners sell. Inside the true up, we have a royalty component, and sometimes we need to true up past volumes or past royalty amounts, and that's what you are seeing in the first quarter.

And is it really from a margin perspective? Is it right to think there's not a lot of offsetting cost when you true up --?

That would be true. We incurred the cost probably in the past, like 2015, but correct.

Thank you.

Your next question comes from the line of Jeff Meuler from Baird.

Yes, thank you. Just first to review what you said on Wood Mack; I think you said flat for full year as reported. I just wanted to verify, that includes an FX headwind, and then you are not adding back the acquired deferred from a purchase accounting standpoint. Are there any other adjustments in that number, and if you can remind us roughly, how much has the acquired deferred add back been adding to the Wood Mack year-over-year trends you had been reporting since the acquisition?

Just to clarify, what I said was on a constant currency basis, we'd be flat, as reported, so I want to make sure you -- you threw in the FX in on top of that, so I did want to call that out. We do try to factor that in. That hopefully is clarifying.

I think we could see growth, yes, for the year, but the environment is a difficult one for everybody, and we are trying to work through it. I think our Team has done an extraordinary job to be where they are.

But just on the acquired deferred, I think you had been adding it back to the numbers you had been quoting since acquisition, and now that you are lapping it, it sounds like you're giving us a reported number, so just if you could help me with that differential?

Sure, your point is valid. We are in the point where we can be a little bit above. We can be a little bit above. The difference between the two is not all that material. It's a few million dollars that we are talking about.

And then just finally, on the healthcare divestiture, I think it's pretty easy to calculate the EBITDA multiple that it transacted at externally, but can you give us what the LTM free cash flow multiple of the transaction was if you have it handy, just so we can do it apples for apples with how you were talking about the Wood Mack acquisition purchase price?

We'll have to follow up so we can get you to the accurate numbers there. I'm sorry I don't have those in front of me. That was a little while ago.

Thank you.

Your next question comes from the line of Manav Patnaik from Barclays.

Good morning. I wanted to ask a little bit around the capital allocation you talked about. But firstly, Scott, you mentioned an active tuck-in M&A pipeline, and I'm trying to understand or just get a little more color on where you are seeing these? My initial impression was it will be more of the PCIs and the Infield, but I don't know if should I be reading into the Ireland insurance acquisition you made that there's a lot more in some of the other verticals as well?

The M&A agenda spans all of the verticals and I would say is very active across all of them. And actually, the place were incrementally we have put in the most energy to raise our game on the M&A front actually has been in the insurance vertical, and I would say especially nondomestic. We are very much meaning in on that agenda and quite active, actually, on that front.

Okay, fair enough. And then just a follow-up in terms of the outlook for Argus, I think at the beginning of the year, you had said you expect double-digit growth. I just wanted to confirm if that's correct and if that's a reported number and not backing out the one-time stuff that you had last year?

That is correct, and that is not backing out the one-time stuff.

Thanks a lot, guys.

Your next question comes from the line of Andrew Steinerman from JPMorgan.

Good morning.

Scott, I think you were indicating last conference call that you thought within the insurance verticals that both RA and DA would accelerate this year. Do you still think that's the case?

Yes, we feel good about insurance.

Could you talk a little bit more about RA? Because obviously, that would have to pick up throughout 2016 from first-quarter levels to accelerate for the first year.

RA is a rich mix of the industry standard programs and the new solutions that we brought to market recently, which would include our predictive models, our electronic rating content, and also innovations in the category of telematics. We're we are using our commercial property capability to spread out into verticals. All of those things are contributing to the performance of that segment.

Okay, thank you.

Your next question comes from Joseph Foresi from Cantor Fitzgerald.

I was wondering if you could talk a little bit about your expectations for growth for energy for next year? I know that it's fairly early, but it seems like we've gotten to a flat constant currency growth rate at this point, and so I'm wondering, how should we think about that in relation to the price of oil? And then I have one follow-up?

Here is the view about Wood Mack. Wood Mack right now in our view is laying the foundation for its next round of growth. So what's going on right now? Customer retention is very high. The new product pipeline is robust. The utilization of our portal offerings is growing strongly, and we are also opening up new channels of distribution for our proprietary content.

The challenge at the moment is the extreme pressure on our customers who are almost two years into this down cycle, and they're still laying off some of their associates, and so they are seeking, even at this time, cost savings anywhere they can find them. But our view is, because our customers are leaning out their staffs, when the market returns to more normal conditions, demand for Wood Mack tools and solutions will escalate strongly, and that's why we are staying the course and we're remaining invested in the present and the future at Wood Mack.

Having said all of that, the one thing that we will never do is make pinpoint predictions of the commodity. We certainly expect more normalized conditions into the future, and we'll see when those occur, and we're hopeful about that because it will be good for our customers. But we've said from the beginning, and we still maintain, that in normalized market conditions, we expect Wood Mackenzie and the pieces that we've added to Wood Mackenzie to grow at or above the rate of organic growth of the rest of Verisk.

Got it. And then just as a follow up, on the margin side, what's your biggest opportunity to move margins up as you look across the businesses? I'm wondering if you could just maybe rank the top three and where you think that there's the largest opportunity to move margins higher, and any commentary you can give on pricing. I figured I'd sneak that in.

It's not three factors; it's one. And that is, it's the fundamental nature of our Business. The way we do business is fundamentally scalable. So as long as we have a healthy business which is growing, and as long as we pay attention to tightly operating our business, that is where the margin opportunity lies.

We've made some structural changes to the Company where, for example, just systemically, our tax rate is lower. But otherwise, it's basic to the way we do business. There's no one long lever.

Thank you.

Your next question comes from David Togut of Evercore.

Thank you. Good morning. Scott, earlier you mentioned your interest in doing international acquisitions, particularly in the insurance vertical.

Right.

Can you talk a little bit about the platform that Wood Mack gives you internationally as you expand your presence in other verticals outside of the US? I'm thinking in terms of resources, operating leverage.

Right, all that. I had the opportunity the latter half of last year to visit many of our Wood Mack offices around the world. It really caught my attention when I was in Beijing.

In Beijing, we have about 30 to 40 Wood Mack people, and at the moment, we have four or five people for our AIR unit, which is our catastrophe modeling unit in the insurance business. We brought them all together in order to talk about the Company and just your typical town hall meeting and to talk about the future. You would have thought that these were long-lost relatives who had just found one another after decades. The pleasure of being able to pull together in a single market, share ideas and share just even infrastructure. So all those folks previously had not been co-located; now they are co-located.

In an intellectual property business like ours, it's just absolutely golden when you can get people ideating with one another, and we were very interested in the intersection of energy and insurance, and it is something that increasingly is going to be very important for us. So just at a very basic level, the ability to pull together intelligent people, have them sharing what it is they are doing and finding the mutual opportunities is so big.

We've commented many times in this calls that the right way to think about a global Verisk is as a multi-domestic Verisk. In other words, in many of the markets we serve, and I'll use insurance is an example, a Chinese primary carrier is not really all that interested in what happened in the United States last quarter in terms of premiums and indemnity losses. They just aren't. It is not that relative for them. So we have to be more Chinese in China. But the fact that we are already legitimate in China actually means quite a bit, and it's just very supportive.

Also, as we try to source new talent, the fact we are a reputable, credible player in all of these markets is a major factor. And we are experiencing that right now as we try to add new highly-talented, local-market-appropriate associates in a number of places around the globe. So maybe it's a little bit difficult to spot from a distance. It's a very powerful effect, actually, inside the Company.

Mark, I think you wanted to --?

I was is going to add to it, just to give you a little color from -- a little vignette. In the world of China, just to tag along on that comment, we think we can do some things around buildings to help understand the risk associated with those buildings and what it would cost to underwrite, and there were some reinsurance brokers that were interested in the tool that we were developing for China. I'm not sure we would have had a way to put that on the ground and to actually respond to that without that offices we have there, and it made for -- beyond the incorporation, we went to -- we had people there with cards there were Verisk. So just a case in point.

Thank you. Greatly appreciate your perspective. A quick housekeeping question for you Mark. What was the March quarter EBITDA that the healthcare business generated?

It is in the discontinued ops area. You can see it, and I believe it was about 21%-ish. I think that was around there. It did include some transactional related costs.

Understood. Thank you very much.

You're welcome.

Your next question comes from James Friedman from Susquehanna. Your line is open.

Thanks. It's Jamie at Susquehanna.

Scott, in your opening remarks, you were talking about the Verisk distinctives, and that was helpful. One of them that you had called out was the increase in subscription revenue as a percentage of the total pro forma for healthcare. I was hoping you could elaborate on that a little bit.

Meaning why we care about that, or just where the number -- are you asking where the number goes to?

I didn't want to get too -- if it is too specific quantitatively, that's fine, but directionally, is that as significant?

Yes, so let's -- I think Mark is looking up the number right now. I'm not sure if you've got it there, Mark. But it's just part and parcel of what we do.

The fact of the subscription revenue really goes to the nature of the relationship with our customers, which is deep and embedded, and it's when you're in that mode that you can move to subscription forms. And just the recurrence and the visibility associated with the subscriptions is something that's very supportive of cash flow and operations and forecasting.

We do care about it, and it's one of the reasons why we feel good about the way our mix is rebalanced here now as we move towards the sale of a healthcare business. Mark, I don't know if you wanted to comment specifically on the numbers.

I think it was 82%.

82%. Thanks.

Mark, just to clarify that, what's the -- are you saying the healthcare was -- oh, 82% of the revenue pro forma for the healthcare sale is now subscription?

Correct.

Okay. That's really helpful.

I hope that the answer -- the response to your question.

Yes, that's what I was getting. I wasn't sure if you've have that, so I thought it might be too specific.

We'll take 82%-ish.

It's around there, yes.

And then I think also, Scott, you had suggested that it decreases seasonality. Could you remind us what the seasonal patterns were for healthcare with the sweeps and all that?

Healthcare was 40% first half of the year and 60% second half of the year.

All right. You've got all the answers. That's very helpful. I appreciate it. Thank you.

You're welcome.

Your next question comes from Toni Kaplan from Morgan Stanley.

Thank you. Good morning.

How should we think about growth in the specialized segment non-Wood Mack? It seems like that has been jumping around a little bit.

There was a little perturbation there in the first quarter. I think you're going to find that settles out as we go forward.

And then I just wanted to ask one additional question on your plans for further international expansion in the insurance business. Which geographies would make the most sense, just given the structure of their insurance systems? Thanks.

Yes. That's a really good question, and that's one that we think about quite a bit actually. You should think of us as a portfolio. So the logical place for us to drill down would generally be established economies that tend not to be overly concentrated in terms of market shares of leading players.

For example, on balance -- and also, you have to concede that language issues are here little bit also. UK is a little bit better for us than, say, Germany. We can pick our spots that way. Japan is a highly developed economy that also doesn't have an overly concentrated insurance market, so that would be another.

That's your first sort, but the other part of it is, we are interested in emerging situations, as well. And two I would call out there, you have to consider China still to be an emerging situation, so that's one that we look at. But it's also interesting that when you look at the sum of Southeast Asia, it turns that Singapore is becoming something of a hub. And so we're going to have both flavors inside of our portfolio. More of the energy will go into established economies, but we're going to feature both kinds in what we do.

Thank you.

You're welcome.

Your next question comes from the line of Anjaneya Singh from Credit Suisse.

Hi, thanks for taking my questions.

I apologize if I missed this, but could you help us bridge what's changed or wasn't anticipated in your outlook for Wood Mack in 2016 versus last quarter? It seems you're now looking for flattish growth versus some growth last quarter. And perhaps if you could give us some color on how your conversations with clients are faring in light of some recovery in the price of oil?

Thanks.

These are small adjustments in our view, I would say, and it's really just a product of the environment and the rate at which it does or doesn't change. Conversations with customers are overall very encouraging. I had the chance, I don't know, month, month and half ago to sit with the Deputy CEO of one of the world's largest energy companies. And the stories they tell about how they make use of Wood Mack content and their focus upon Wood Mack as a partner, these are very encouraging kinds of stories.

And then we just look into the data in terms of, for example, the number of users of our portal offering and the rate at which they are making use of our content, all of which are going up pretty strongly. But it's also the case that even now, well into the nosedive in the pricing of the commodity, there are still reactions in terms of our customers trying to get their own cost structures right. And in the same way that there was a little bit of a lagging effect in terms of the commodity price coming down and then the reaction of the energy companies. You have to expect that there will be some of that also on the way back up.

There will be some timing effects inside of -- I would not expect instantaneous reaction of our customers to what the price of the commodity is doing, because the price of the commodity has to work its way into not only their forward plans, but also the way that they are actually spending their own CapEx dollars, and there just will be time dependencies inside of that.

Okay, appreciate it.

And as a follow-up, as it relates to the DA insurance business, it looks like cat bond issuance reached a new quarter record after not a very exciting year 2015. Could you talk about the tailwind that provided in the quarter and what you would expect if these trends continue for the year?

So just first a comment.

Cat bonds are an interesting category, and it's one that we participate in, and it definitely is there in the mix of risk transfer mechanisms that out there in the world. But I would encourage all to not overstate the amount of risk that gets managed through that mechanism. It's interesting to look at it because you can carve it out and identify it.

You are right, it was a good moment for cat bonds, and our AIR business did very well. The share of the identified cat bonds our Team analyzed was very high. And as I think everybody knows, we almost always have the vast majority of that market anyway. So yes, it was helpful.

But there's movement also in the cat bond world. Don't miss that. There's the move towards the so-called mini cat bonds, and there are different ways that you can actually analyze cat bonds. It's a dynamic environment; I will put it that way. But yes, we feel good about how we did with the most recent issuances.

Okay, great. Appreciate the thoughts. Thank you so much.

Your next question comes from Arash Soleimani from KBW.

Thanks, and good morning. In terms of -- can you break out the revenues for Infield and PCI?

They are pretty modest in the scheme here. I don't think we've provided that detail in the past. They're not substantial. They are more tuck-in in nature.

Okay. That's fair.

And then with Wood Mack, is it fair to think there that the organic should do a little bit better in the second half of the year given that the discretionary consulting revenues were pressured in the second half of 2015? Does that comp get easier in the second half of 2016?

The answer is, as reported, it probably could get a little bit better. It really is, again, to the consulting side of things, it's a bit of a swing factor in this, so we continue to try to remain conservative, although performing well and the underlying usage is up and strong.

Thank you for the answers.

Your next question comes from Andrew Jeffrey from SunTrust.

Good morning, all. Very strong job, as usual.

My question is actually around Argus. I'm wondering, when you think about the growth in Argus, how much is coming from the core products versus the media (inaudible) marketing effectiveness piece of the business? And where do you think the relative growth rates of those two [swedes] are?

The contributions to Argus' growth are very broadly based across not only the traditional consortium model analytic view, but also the specific analytic products that are being provided to customers, to the white labeling of our analytic environment, to the opening up of new markets like media effectiveness, to the opening up of new markets geographically. All of those cylinders are hitting.

So there is no one call-out per se?

No. One of the reasons why Argus is such a wonderful business and has such a bright future is that it has many different ways to grow.

Thank you.

You're welcome.

Your next question comes from Sara Gubins from Bank of America.

Thanks, good morning.

Looking at the margin compression in business and analytics in the first quarter, it sounds like organic margins may have been up year over year, and so I'm wondering, first, if I'm reading that correctly, and second, if then the margin compression would be attributed perhaps to Wood Mack and investments that you are making there?

This is Mark. I think your observations are correct.

Let me just remind you of two facts. First of all, Wood Mack has very good margins; however, they have a tough comp in the rest of Verisk, so you are seeing that come into the quarter that does work against us in Decision Analytics.

The other thing you need to look at is, in the first quarter of 2015, we keep talking about that project revenue from Argus, and we also highlighted back a year ago, there were extremely high margins on that project revenue. And as a result, that creates an artificially high margin in 2015 in that first quarter. So those are the two things that I think if you normalized out, you would see probably a pretty good story inside of organic DA margins.

As we think about margins in that segment for the rest of the year, it doesn't sound like we should necessary expect to see significant compression.

I'll highlight the things I made before. We do have all of our salary increases that take effect in April, and we also give out our equity awards April 1 as well, and those will replace equity awards from four years ago. So those are some additional cost that are layered into the underlying structure from second quarter on. But all else being equal, I agree with you.

Great. And then sorry to bring this up again, but I just want to make sure that I understand your comments about Wood Mack expectations. There are number of moving pieces between purchase accounting and FX, as well as the timing of when Wood Mack came in.

On an underlying basis, excluding currency and excluding purchase accounting, is your expectation for 2016 trends lower than or worse than you had previously thought given the overall environment? Or is your commentary about seeing it flat on a reported bases more a function of the purchase accounting mechanics?

I think what we tried to describe is that we remain very optimistic on the business, but we do believe that there are probably some market economics that are just difficult for our customers and us right now. So in both cases, we think that's going to be down slightly. But still has the opportunity to grow on a reported basis; so I'm trying to give at least get a little bit more color to everyone.

Okay, thank you.

Your next question comes from the line of Jeff Silber from BMO.

Henry Chien calling for Jeff.

Just a follow-up question on the DA insurance piece. I was wondering if you could share any color on the pricing environment for your services. Just trying to better understand some of that, the acceleration and the growth there. Thanks.

I would describe the environment as relatively unchanged relative to last year, and actually over many years. One of the hallmarks of the insurance industry is its stability. The regulatory environment has not really changed that much. Industry structure has not really changed all that much.

There have been a couple of larger mergers, but industry concentration still remains pretty much the same. The way that we price our products has not changed. Probably, our pricing actually gets even a little bit tighter as we continue to grow the subscription-based part of the mix. So there's really not a lot of change, really, in terms of what the environment yields.

Okay, got it. Thanks for the color.

You're welcome.

Your next question comes from Hamzah Mazari from Sterne Agee.

This is [Kavon Robarns] filling in for Hamzah. Could you give us a little update on the Verisk Telematics data exchange and how many OEMs are currently signed up and how large that initiative could be?

Yes. So you've actually got a couple of questions there.

The current status is, we are actually in the rollout phase with our first OEM, who we announced some time ago. We'll be providing product to the insurance industry right around the crossover from third quarter to fourth quarter. That will be the first fruits commercially of what we've been doing.

We're very pleased with the discussions we're having with the insurers in terms of their interest in the data and the analytics. And we are actively cultivating other OEMs, and I think we feel very good about the prospect of this really being the industry standard. But every OEM is going to think about it in their own light and draw their own conclusions, but we are actively calling on all the name brand OEMs in the United States.

So yes, we feel very good about it. And the technical work has proceeded very nicely, and we are just all primed. We're ready to go.

All right, appreciate it. Thank you.

There are no further questions in the queue.

Okay. Well, thanks everybody for joining us. We're happy to talk about a quarter that we feel very good about and look forward to being with you again roughly 90 days from now.

And we'll be seeing some of you between now and then who are coming to visit us here in the office. We look forward to having you. Thanks very much for your time today.

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