Verisk Analytics Inc (VRSK) 2016 Q4 法說會逐字稿

Good day, everyone, and welcome to the Verisk Analytics fourth-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 Director of Investor Relations, Mr. David Cohen. Mr. Cohen, please go ahead.

Thank you, Scott. and good day to everyone. We appreciate your joining us today for a discussion of our fourth-quarter 2016 financial results.

With me on the call this morning are Scott Stephenson, Chairman, President and Chief Executive Officer; Mark Anquillare, Chief Operating Officer; and Eva Huston, Chief Financial Officer. Following comments by Scott, Mark, and Eva highlighting some key points about our strategic priorities and financial performance, we will open up the call for your questions.

Unless stated otherwise, all results we discuss today will reflect continuing operations. All discussions of EBITDA reflect adjusted EBITDA, for which you can find a reconciliation in our press release.

The earnings release referenced on this call, as well as the associated 10-K, 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 on our website and by dial-in.

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

Thank you, David. Good morning, everyone. In the fourth quarter we again delivered solid revenue growth, leading margins and strong underlying cash generation. The resilience of our financial performance, while facing currency and energy and market headwinds, reflects the distinctiveness of our businesses, the outstanding dedication of our people, and the value we deliver to our customers. In addition to a successful 2016, our initiatives during the year position us well to execute on our plans for 2017.

Revenue from continuing operations grew 6% in the fourth quarter and 13% for the year. Organic constant currency revenue grew about 6% in the quarter and for the full year. With almost 8% growth in the quarter from our combined insurance and financial services businesses, the long-term underlying trends remain encouraging.

Wood Mac finished the year slightly better than flat, a remarkable achievement given the end market head winds. Profitability remains strong, with total EBITDA margins in the quarter and for the full year of around 50%. EBITDA growth was around 7% in the quarter, and excluding the prior-year warrant sale gain, was about 12% for the full year.

Diluted adjusted EPS grew about 8% in the quarter and for the year and about 11% excluding the prior-year warrant gain. Year to date, free cash flow is up 16% excluding the one-time tax on the gain on the healthcare business sale.

We were pleased to continue returning capital to our shareholders through our long-standing share repurchase program. We bought $144 million of stock in the quarter, and after an additional $500 million authorization we had over $600 million available as of December 31, 2016. With our leverage below are 2.5 times reference level, we have plenty of capacity to make strategically relevant acquisitions as well as additional repurchases.

We made a number of tuck-in acquisitions in 2016 and early this year, which collectively have brought us new data sets, adjacent solutions, distinctive analytics, additional markets to serve, and outstanding debt analytics talents. In many cases, the acquisitions also accelerated our strategies at a lower cost relative to a build approach.

We benefit from our flexibility to decide whether to innovate organically or via acquisitions. We remain active in evaluating possible transactions in pursuit of our international expansion and vertical enhancement efforts.

The foundations of our businesses remain the distinctive of, one, unique data assets; two, deep domain expertise; three, first-to-market innovations; and, four, deep integration into our customer workflows. Our success is due to the outstanding efforts of our people who enhance the distinctiveness of our business as we focus on serving our customers with innovative data analytics solutions. We feel very good about our ability to serve our customers and drive top-line growth for the long-term as a result.

We are well-positioned for 2017 with contributions expected from existing and newly acquired businesses. We continue to invest in innovation and I am excited about the multi-year opportunities for solutions under development this year. So, with that, let me turn the call over to Mark for some additional comments.

Thank you, Scott. Across our businesses which serve the property and casualty insurance industry, we have several key industry themes, including vertical big data, industry automation and digital engagement. As we serve our customers with these themes in mind, we made a number of tuck-in acquisitions to complement our organic efforts. We made two acquisitions to enhance our strong position in extreme event modeling, analyze re, extend AIR's capabilities farther downstream by providing real-time solutions for reinsurance treaty pricing, enterprise portfolio roll up, and portfolio optimization.

Last month we acquired Arium, which provides modeling solutions and analytics for the casualty market. Our vision is to leverage Arium's capabilities to allow us to do for casualty analytics what we've done for property analytics. Arium's solutions provide analytics for liability exposures, including visual and quantitative insights into accumulations in areas of risk concentration.

These acquisitions got us to market faster and at a lower cost than if we had built the solutions ourselves. We also acquired MarketStance, a leading provider of data analytics solutions that enables and ensures us to identify high potential market segments of interest. This gives us a broader set of solutions with which to serve our customers' marketing departments.

Another of our recent acquisitions was the GeoInformation Group, a leader in geographic data solutions based in the UK, where we are expanding. The GeoInformation Group offers large-scale mapping services and geospatial data and analytics solutions to a wide array of companies and public sector organizations. This acquisition complements our risk management and predictive analytic capabilities internationally, and expands Verisk's footprint in the UK across multiple verticals including insurance, energy and real estate.

Finally, just last week we acquired Healix Risk Rating, a leader in automated risk assessment at the point of sale for the travel insurance industry. This acquisition further expands our risk assessment offerings for the global insurance industry, providing solutions that are embedded in our customer workflows and can help our insurers underwrite travel insurance with greater speed, accuracy and efficiency.

These tuck-in acquisitions are close to our core insurance business and support our deep analytic expertise, unique data, and global focus. With that let me turn the call over to Eva to cover the financial results.

Thank you, Mark. In the fourth quarter and for the full year we again grew both revenue and EBITDA, while also investing in solutions with meaningful long-term potential revenue streams. Revenue in the fourth quarter grew 6% and 6.2% organically in constant currency. For the full-year revenue grew 13.3% and 5.8% organically in constant currency.

Our combined insurance and financial services businesses grew 7.9% in the quarter and 6.9% for the full year. As a reminder, organic constant currency growth excludes the contribution from recent acquisitions and reflects current-period exchange rates apply to prior-year period revenue.

EBITDA grew 7% to $258 million in the quarter and 11.9% to $1 billion for the full year. The full-year growth excludes the 2015 warrant sale gain. EBITDA margins were 50.9% in the quarter and 50.4% for the full year.

Within the Decision Analytics segment revenue grew 6.5% and 7.3% organically in constant currency. Again this quarter financial services was the fastest-growing vertical while insurance-focused solutions were the largest contributor of dollars to growth.

For the full year Decision Analytics revenue grew 18.5% and 6.3% organically in constant currency. Decision Analytics insurance revenue grew 7.5% in the fourth quarter. Organic growth was 7.3% in the quarter.

Performance in the quarter was led by strong growth in underwriting solutions with good contribution from claims analytics and repair cost estimating solutions. Catastrophe modeling solutions also contributed to growth.

For the full year revenue grew 8.1% on a reported and organic basis. The full-year Decision Analytics insurance growth is consistent with what we delivered in 2015. Customer retention remains very high and we're confident in our ability to continue to deliver growth.

Energy and specialized markets category revenue declined 0.3% in the quarter, and increased 43.4% for the full year. On a constant currency basis Wood Mac was up slightly for the full year. We were expecting the results to be about flat and as a result we were pleased with the performance.

Consistent with our long-standing approach, Wood Mac became a part of organic revenue starting in the third quarter. Revenue for energy and specialized markets, excluding the recent acquisitions, declined 5.5% in the quarter and for the full year, primarily as a result of the continuing end market and currency headwinds affecting the energy business.

Financial services category revenue increased 27.3% in the quarter and 10.1% for the full year. Growth was driven by analytical and media effectiveness solutions.

Risk assessment revenue grew 5.1% and 4.4% organically in the quarter, continuing to demonstrate the value to our long-standing insurance customers, contributions of newer solutions and the inclusion of recent acquisitions. Risk assessment growth was 5.2% and 5% organically for the full year.

Industry standard insurance programs revenue grew 5.9% in the quarter and 5.4% organically, reflecting our 2016 invoices and continued contribution from newer solutions such as predictive models and electronic rating content. Growth was 5.6% for the full year and 5.3% organically.

Our property-specific rating and underwriting information revenue increased 2.6% in the quarter and 1.4% organically. Growth was led by underwriting solutions revenue. For the full year growth was 4% and 3.7% organically.

EBITDA increased 7% in the quarter to $258 million, resulting in EBITDA margins of 50.9%. For the full year, EBITDA increased 9.9% resulting in margins of 50.4% and, adjusted for the 2015 warrant gain, grew 11.9%. Reported interest expense was $28 million in the quarter and $120 million for the full year.

At December 31, 2016 total debt was about $2.4 billion, including about $100 million of revolver borrowings. Our pro forma leverage at the end of the fourth quarter was about 2.2 times. Since the end of the fourth quarter we have repaid an additional $70 million.

Our cash and cash equivalents were about $135 million at the end of 2016. Our reported effective tax rate was 32.9% in the quarter. For the full year 2016 the effective tax rate was 30.9%.

Adjusted net income increased 5.5% to $135 million in the quarter and 10.1% to $532 million for the full year. Adjusted EPS on a fully diluted basis was $0.80 in the quarter, an increase of 8.1%. For the full year, adjusted EPS grew 8.4% to $3.11.

Diluted adjusted EPS from continuing operations for the full year increased because of organic growth in the business, acquisitions and lower interest expense. The increases were partially offset by higher fixed asset depreciation expense, higher taxes and a higher share count. Excluding the 2015 warrant gain, adjusted EPS grew 10.7% for the full year.

The average diluted share count was 170.2 million shares in the quarter. And on December 31, 2016 our diluted share count was 169.5 million shares. We repurchased 1.8 million shares in the quarter for a total return of capital to shareholders of $144 million.

At December 31, 2016 we had $636 million remaining under our share repurchase authorization. As Scott mentioned, we added an additional $500 million in December. Our repurchase program has been successful to date, generating annualized IRRs above our cost of capital.

Free cash flow increased 20.8% to $498 million for the 12-month period ended December 31, 2016, excluding the $100 million tax on the gain of the sale of the healthcare business and the $19 million ESOP payment. Free cash flow, excluding the tax and ESOP payments, was 49.5% of EBITDA. These numbers are all for continuing operations. Free cash flow remains an important metric for measurement of driving enterprise and therefore shareholder value.

Capital expenditures were $146 million in the 12 months ended December 31, 2016, an increase of $7 million over the same period in 2015. Capital expenditures were 7.3% of revenue for the 12 months ended December 31, 2016.

As you think about your models for 2017, currency will continue to be a headwind, with the strongest effect in the first quarter and continuing through the year given the current sterling-US dollar rates. On a reported basis this will affect the normal quarterly progression we typically see.

In 2016 the exchange rate averaged $1.44 before the June Brexit vote and $1.36 for the full year. At December 31, 2016 the rate was $1.23. At $1.23, 2016 revenue would have been about $25 million lower than reported, with the greatest impact in first quarter.

In addition to the revenue impact, currency will also have a downward impact on margins. Depending upon your prior FX assumptions, please keep the lower currency in mind as you review your 2017 and forward estimates. In addition, you will recall that in first quarter of 2016 we had several million dollars of one-time true-up revenue in Decision Analytics insurance, which we discussed with you last year.

And, finally, please keep in mind that the tuck-in acquisitions are not yet at scale and therefore are lower margin than corporate average, but proportionate to their size. The acquisitions we're doing are close to the core with well-defined paths to top-line growth and margin expansion.

The net of many of these factors is that we expect to see much more of a progression in both revenue and EBITDA as we move through the year. In addition, we expect CapEx of about $160 million to $165 million. This reflects the opportunities we have to invest in some newer areas, in many cases related to people which fall both under operating and capital expenditures; fixed asset depreciation and amortization of about $125 million; and amortization of intangibles of about $90 million.

Based on our current debt balances and interest rates we expect interest expense to be around $115 million. And we estimate the tax rate to be in the range of 32% to 33%. In the adjusted net income calculation we will continue to use 26% for the tax effect on intangible amortization. And, finally, we expect a diluted weighted average share count of 171.2 million shares.

We are pleased with our 2017 plan while being mindful of the currency headwinds. We're excited about the opportunities to invest, looking to drive long-term profitable growth. We remain confident that we have the financial strength and capital structure to support investment for the long term.

We continue to appreciate all the support and interest in Verisk. Given the large number of analysts we have covering us, we ask that you limit your questions to one and one follow-up. And with that, I'll ask the operator to open up the lines for questions.

(Operator Instructions)

Tim McHugh, William Blair.

First, I just wanted to ask for a little more color on the insurance vertical. The growth, while you talked last quarter that you didn't expect that part of the business to accelerate this year, it still seems to have been probably a little slower than you used to see. So, can you talk about the puts and takes that you are seeing just within that vertical?

Hi, Tim. This is Mark. I just wanted to give you the color you're asking for. First of all, I think we continue to feel very good about the insurance vertical overall, a combination of greater customer engagement in the form of better interactions, higher level interactions, big topics being discussed, as well as a lot of new innovations we are excited by.

Inside some of the macro you do have some headwinds with regard to the world of premium growth and industry consolidation. But I think those are, to a lesser extent, more distant. And I think the team performed well in spite of a couple of what I would refer to as some industry slow down. But we maintain a very positive outlook for the future.

Just to follow up, in the context of that tougher industry environment, I assume that's going to continue into 2017. Would you expect the growth rate to stay at a little lower level in that environment? Is that the way of thinking about it now or how are you thinking about?

I would say to you that if you are focused on industry premium growth a lot of our contracts now have moved beyond and away from that. There is clearly a focus on procurement and cost containment inside of our customers. So, that's a little bit of what I was referring to. But in what I see as a lot of industry automation that's happening, people are really looking at processes, at how their systems operate, and that is giving us some big opportunities and some nice pipeline.

The other thing I will highlight, as we continue to be talking about here US premium growth, we continue to have aspirations and some opportunities that extend beyond the United States. International and global expansion remains a key priority for us as look forward. I think we remain positive across the board there. I hope that's responsive.

Yes. And just continue that one follow-up, the cat modeling area seems to have been the slowest growing part this quarter for Decision Analytics, as it was last quarter. I recognize the issues in the reinsurance. But are you comfortable that you're still picking up as much market share as you were in the past? You seem to have grown faster relative to your main competitor there, even in the past versus lately.

I think we are continuing to make a lot of progress there. You probably hit a couple of the topics, although a smaller piece, the world of insurance-like transactions is a little lighter so that probably has brought some of that revenue down a little bit. More importantly, though, we, from the standpoint of working with insurers and reinsurers, have been growing like we have in the past. I don't think there's any slow down there.

When we talk about industry trends, though, there is a headwind relative to if there's industry consolidation among insurers. So, you see some of that type of growth, as well.

Okay. Thank you.

Manav Patnaik, Barclays.

Scott, with reference to your comments early on in terms of being well-positioned for 2017 with new and existing solutions, I was hoping you could maybe touch on some of the new ones you were referring to, and if that changes the trend in the growth rates you're seeing right now, if there is any material pick up we should expect in 2017.

The innovations are very broadly based. They cover many different aspects of the insurance value chain. I'll just s reference a few but there are really so many.

We are working on helping our customers that are doing aggregate portfolio analytics with better portfolio tools. This relates in part to what we added with Analyze Re. We have platforms which speed up the underwriting process. We have new data sets which relate to, among other things, the underwriting of auto policies, which is related to the telematics data exchange.

We are making better use of remote industry in helping the claims and, increasingly, the underwriting processes, to move ahead. We are bringing new forms of data management to the insurance vertical.

One of the things -- and Mark was referencing this before -- the big data movements. Last year I spent a good deal of time with the CEOs of our largest customers. They are very interested in the nature of their technical environments, everything from our potential conversion to more of a cloud basis in terms of our computing, being a primary consideration. But they realize that, like a lot of companies in the world today, we need to grow beyond the first version of the enterprise data warehouse movement, which was actually a the late 1990s, early 2000 thing.

So, these are very significant topics for our customers. And I could keep going on. The overlap between energy and insurance. It's very broadly based. And that consistent with who we are basically. We are very deeply engaged with our customers, and so that's why we are able to move out on such a broad set of fronts.

Mark referenced before the macro environment. Balancing the macro environment in the United States, as he said, is the fact that our ambitions are global and we have really had much less activity in non-domestic markets. But that's a factor which is here, which I believe will be increasingly significant as we go forward. We are very pleased with where we sit.

Got it. And then in terms of the follow up, with respect to CapEx, it fell in 2016, at least on a dollar basis, and it's picking back up. Are there any unusual items in there or one-time-ish that need to be called out? And just looking at it forward, should we think of 7.5% to 8% as new normal for the CapEx spend?

Manav, it's Eva. Good morning. Just in terms of CapEx, I think the numbers, when you said it fell, it did not fall in dollars, if you are looking on an apples-to-apples basis. Remember, we have continuing ops and we have the divestiture of Verisk Health. I think, as I said in the script, you actually saw dollar growth in the year.

The percentage was about 7.3% in the year. So, as we have talked about, we have been managing that CapEx. We had some investment over a several year period where it peaked, and now we are bringing that back down. What we're doing, though, really, is we're striking the balance between being efficient with the dollars we're spending and ensuring that we are investing in that internally developed software, which is a lot of the platforming that we have been talking about.

Got it. Thank you.

Andrew Steinerman, JPMorgan.

Eva, it's Andrew. Given the healthy margins in the fourth quarter, I wanted to know if the Company's positioned to have margin expansion in 2017 including the comments that you made about FX and the small acquisitions.

Thanks for the question, Andrew. As we think about EBITDA margins, as you know, there are a mix of a number of things that go in there. FX is certainly a weight on margins. And the acquisitions, as we said, the small tuck-ins, I think the margins are appropriate for the stage of development they are in but that are a drag on margins. So, while we are not giving specific guidance in terms of the margins, I would say that those are probably the balancing factors you should consider when you think about your model.

Could you give us a sense of size of those two factors?

I think if you were to think about -- we give you the dollars of revenue on FX. That's about a $25 million drag just on the apples to apples if we were to use constant currency here. In terms of the acquisition margin, you can look just in the filings. We'll be happy to walk you through the math after the call, the margins for those. So, I think you will be able to figure that into your model.

Okay. Thank you.

Jeff Meuler, Baird.

Just given the insurance industry comments, is the annual invoicing impact this year similar order of magnitude to past years, to recent years?

This is Mark. I just want to make sure I have the question. We have typically and traditionally invoiced around the holidays in anticipation of the future years. This would be December of 2016. Timing and everything is unchanged.

I think the second part of your question, if I read into it, is that, I think with every passing year we have started to engage with our biggest customers to put in please what are longer-term contracts that are unrelated to premium. So what you will see his a majority of that revenue, what we would typically talk about industry standard programs, is now unrelated to premium. It's all about a negotiated outcome. If they want to add new service, obviously there would be additional fees to be charged. But everything is consistent with the past, a little less focused on premium going forward

Great. And then in terms of the increased cadence of tuck-in M&A, including a lot in the insurance vertical, is this just a moment in time where there is a flurry? Or is there something that's changed, whether it's culturally, making everybody part of the M&A team, or something about the end market, something strategically? Just a comment on the increased cadence of tuck-in M&A.

You really answered your own question. We, about maybe 18 months ago or so, really began campaigning throughout the entire Company for the notion that everybody is on the M&A team. And what we mean by that specifically -- and relating this to the interest of our shareholders -- because we're walking the hallways of our customers' offices on a daily basis, we actually have intelligence that is not available broadly in the world. And, in specific, we get a chance to see other companies that are perhaps emerging and at least beginning to make a difference for our mutual customers.

So, we've really just hit very hard the idea that intelligence is an additional source of value for our shareholders. We have really engaged at an even deeper level with the folks in our business units, and this is the result basically.

So, no, I don't it is -- it is a moment in time in the sense that we put increased emphasis on this at a point in time, about 18 months ago, but I don't think it's a transient phenomenon. I don't know that we will always be putting points on the board at exactly this rate. We will see how it goes. And nor do we start with the assumption that it's all about size. If they are strategic, we are happy to do mid-size deals, large deals, smaller deals. But I would encourage you to think of the smaller deals as reflective of a very active strategy, which is about expanding our sources of value for our customers.

As Eva said in her remarks, there's just a balance here between buy and build. We are very open to what gets us to the valuable place fastest. So, no, not a moment in time, although something did change in our environment.

Okay. Thank you.

Andrew Jeffrey, SunTrust.

Thank you for taking the question. I am wondering, Mark and Scott, as a follow up on some of the competitive questions, particularly insurance, is there anything you are seeing changing on the ground as far as new competition or new technology? And I'm thinking specifically within underwriting and maybe even geospatial and [aerial].

I wouldn't really point to new competition. I think that there are classes of folks that have money to invest who have been on the theme of insurance and are in and around it. I think of a couple private equity players. And then there's a couple of operating companies that have had the theme for a while.

When you look at the actual operations that are out there assembling information and creating solutions, et cetera, it's really a very slowly -- almost no change, actually, in terms of the cast of characters. Ownership may shift some but the actual on-the-ground operation and delivery, I don't really see that changing very much.

What you do have at the margin are some companies that come more from a big data horizontal methods approach and attempt to work their way into the insurance industry -- actually, not just the insurance industry, but if you think about all of our verticals. That's a theme out there, which is one of the reasons why we really beat the drum for vertically oriented data analytics, because we really think that's a very strong place to stand. And it's in the verticals that proprietary data grow up.

So, there are those kinds of players who are out there. And, of course, there's technical innovation, as well. For example, if you were to pick the category of drones, there is a list of companies who would like to help outfit you with one or two or three or five drones. That list of companies is as long as both of my arms. But the literal difference they are making in the insurance industry today is low, it's very low, very modest.

So, no, I don't really -- the bottom line is -- and this is actually true of everything that we do -- competition does not fundamentally determine our opportunity or what it is that we are doing. It is all about our relationship with the customers and our ability to really understand their needs and harness methods and technology and data and get them to where they need to be. That is what makes the difference between, or spells the outcome in terms of, for example, our growth rate.

Okay. That's helpful. Thanks. And when I look at Wood Mac, with the turn in oil prices, I'm wondering if 2017 is likely to be a significantly more positive growth year. How are you thinking about your Wood Mac business this year?

Let me characterize generally, and Evan might care to add something. The point I really want to emphasize here is really the tremendous performance of Wood Mackenzie in the face of historic conditions. And I was impressed last year spending time with the CEOs and senior members of Wood Mac's customer set, as well as others, with how much depth of relationship Wood Mac enjoys, we enjoy with our customers, and the regard that customers have for us, and a very active set of new product initiatives, which I think are aimed at just exactly where the industry is.

So, that's the bedrock. Those are the things which are really core. But definitely the conditions in 2017 are better than they were in 2016, and 2016 was at least a stabilization relative to 2015. So, yes, the environment is moving in the right direction. It's another part of our forward view of being very pleased with where we are with Wood Mac. Eva, I don't know if you want to add anything to that.

I was just going to add, if you want to start with customer retention, remained very high in 2016 despite what was obviously a challenging environment. So, that's really the basis on which we start to grow going forward. We start with the existing clients.

One thing just to keep in mind, as Scott talked about, we have new products, there's lots of things we can sell. The fundamental base of Wood Mac remains our subscription business. As it creates stability in a downturn, it also takes a little while for that to tick back up. I think we are very positive on Wood Mac. Just remember that subscriptions don't turn on a dime. But I think we are optimistic about 2017.

Okay, that's helpful. Thanks a lot.

Hamzah Mazari, Macquarie Capital.

This is Kayvon. I am filling in for Hamzah. I have a question for you guys about the Decision Analytics business. How much of that is subscription and how much room do you guys think you have for conversion? How has that been going over time?

I think what you will see, you will see less subscription in Decision Analytics and risk assessment, but still a very high level, and overall we're at about 80% - 85% in the whole Company. It's interesting because I think what tend to see is, as we're converting certain parts of that business from transactional to subscription, we are bringing in actual new solutions which tend to start transactional. I don't expect that over time you're going to see a grand shift in that as long as we are doing what we want to do, which is create those new solutions.

All right. Thank you.

Toni Kaplan, Morgan Stanley.

This is Patrick in for Tony. The first question is, I'm wondering if you guys are expecting financial services to achieve another year of double-digit growth in 2017.

As we think about our Company, the way we have really framed it for the market is the total growth of the Company and aiming for the organic growth that we've talked about historically rather than parsing it into individual segments. Certainly financial services has been a strong performer for us and we think there's a lot of things going on within that area that are pretty exciting. But I wouldn't put a specific growth rate on it at the moment for you.

Thanks. And then it looked like normal free cash flow conversion ticked up a few points year over year but remained below the 60% of EBITDA target you've talked about in the past. Is 60% still your target? And if so, can you talk about some of the levers you have to reach that goal?

Yes, I'm not quite sure where the 60% target is coming from. I don't know that that is something that we have stated. We're very pleased with the conversion of the free cash flow. Clearly, there are just a couple of things that come out after you have EBITDA. You have got to pay taxes so certainly we do that, as we should.

I would say the working capital remains a positive contributor there. CapEx would be the other offset. So, I think fundamentally we feel good about where we are in terms of free cash flow generation.

Thanks, Eva.

Arash Soleimani, KBW.

Just a couple quick questions on risk assessment, specifically property-specific underwriting. The organic there seems to have ticked down a bit sequentially. I was just wondering if that was due to anything specific.

First of all, it's business as usual in property specific. If you actually look through 2016 you will see the revenue there per quarter, anywhere from 42.4 each quarter eking up to about 42.7. We did sign a couple nice contracts in fourth quarter of 2015 so that helped us in 2015, probably creates a bit of a grow over in fourth quarter of 2016. I think it's a wonderfully consistent business that's had some stable growth.

Thanks. And just a last question, still on risk assessment. Is the hiring there basically complete now or is that still ongoing?

It's a good question. I think we are getting through it, finding the right people. We are very selective. And we have some new initiatives in risk assessment that we are excited by and we're going to probably bring in some talent to lead those efforts. So, not completely done. I think that will continue to add some expense inside of risk assessment as we progress through 2017.

Thank you very much for the answers.

Joseph Foresi, Cantor Fitzgerald.

I wanted to ask the growth rate question for the individual businesses a little bit differently. Is there anything we should be aware of from a business perspective that would impact present growth rates that we exited 2016, heading into 2017, obviously excluding the FX in those individual businesses lines?

Yes, we are back to the same point we were on before, which is we've noted what's in the macro environment. Eva talked about currency, Mark talked about the in-the-moment condition of the insurance industry. I would just add that financial services companies are wondering where they are at right now. US financial services companies, maybe on the one hand there will be some deregulation, and on the other hand they have been dealing with mounting compliance requirements and have felt some squeeze on the bottom line. And we've talked about the environment at Wood Mac.

But the counterpoint to all of that is our program of investments in creating new solutions and our ever-deepening relationships with our customers. Those two things are the wellsprings of our future performance. And we feel very good about those things.

Okay. And how should we think about the breakdown or the focus of investments in 2017? Anything you would like to call out as areas that you are keenly focused on outside of the international growth? Thanks.

I would say that we are investing across all the different verticals that we are in and pretty excited. International growth is certainly a highlight, as well. So, I think is pretty broad-based.

We have noted for you all in the past that there is an increasing software intensity to our business, which is essentially another way of saying that we are solutions-oriented company. And I think that's a true statement. We have moved into that position over the last couple of years. I don't know that the relative software intensity is going up from where we are but that's a drum beat inside the business.

Got it. Thank you.

Jeff Silber, BMO Capital Markets.

In just looking at the cost of revenue in the quarter that you booked, it was fairly high compared to last year. Were there any one-time items going on, either this year or last year? And is this the kind of rate we should look for going forward in 2017?

I think that best way to think about it is in aggregate. And there are, as we think about the business and the cost of revenue versus SG&A, sometimes there are things that balance between those depending on where we are in development versus implementation of those solutions. So, I don't think there's any conclusion to draw from that as you look forward to 2017.

Let me ask the question another way. If I take the combination of cost of revenue and SG&A, again, should the run rate that we saw in the fourth quarter be something we use for 2017?

I think that's certainly a starting point. Again, I think there are a number of things that go on within numbers but that would be the baseline.

One more quick numbers question. What should we be looking for for stock-based compensation this year?

I don't think you'll see any grand shifts in that.

Okay, great. Thanks so much.

Andre Benjamin, Goldman Sachs.

I know you had a couple points about your international expansion goals being part of the M&A strategy. And I know you now have a hub in the UK on the back at the Mac Wood acquisition. I was wondering how we should think about your focus on UK businesses as opposed to other parts of the EU given each country there operates very locally.

Let me start there and then maybe Mark will fill in with a little bit of detail around the insurance vertical specifically. But, at the general level, first of all, we have beefed up our corporate development capability in Europe, and we are in the process of beefing it up in Asia, as well. So, it's really an around-the-globe view of our opportunities.

That expresses itself both as acquisitions. You have seen some of that in the more recent acquisitions. Also partnerships. We really like both flavors and we will be spending time on both of those flavors.

But I really compliment the question, Andre, because it really is the case that if you are a data analytic company, and you take the data dimension of the data analytic agenda seriously, then you have to find a third way to operate basically, if you want to be global, because there's the one form which is you make it wherever -- Copenhagen, Detroit, whatever -- and you export it around the world. That tends to relate more to physical goods. And then there's the second form, which is you become utterly local, completely local, in what it is you do, and the whole really doesn't become greater than the sum of the parts.

If you are a high intellectual property company with a database, you actually have to find a third way, which is, you can manufacturer your methods centrally but -- I think in line with what you're trying to get at -- you actually have to occupy each marketplace because there is in the world today, and will be in the world increasingly in the future, what I called data nationalism. Most countries work very hard to make sure their data physically resides in their country. And, in fact, the follow-on to the Safe Harbor, in the EU, which is just a particular example of the general case where there is just concern about where do our data physically reside. And so you do actually have to become local in order to have access to the data.

So, you have to be the third way -- or, we have to be the third way, anyway. So, we are working very hard on that. And that is everything from where we place our people to how we deploy our people. And so here is where I now want to turn it to Mark because he led us through a very significant reorganization towards the end of last year with respect to our go-to-market folks in overseas market. So, Mark, maybe you want to talk about that, including how broadly based this particular program is.

Yes, thanks, Scott. I think what we have tried to do is identify markets that are mature and like the US market. That's where our solutions act and feel the best. Obviously we have the focus on some of the emerging markets, too, but where we're currently putting of our resources is also where we have customers so that we have the ability to following a customer to different geographies.

That focus has led us to really take a lot of people who have been typically in different business units and put them in what we refer to as our global business development teams. And those teams are working across all of our insurance operations to really focus in on different markets and opportunities across all the solutions we offer. That reorg has provided us with a focus on customer, better relationship with customer, and talking about Verisk, not individual point solutions, and that's starting to make a difference.

The other thing I'll just contribute -- and, by the way, those business development teams are across the world. You had brought up UK as an example. Clearly the UK market feels the most like the US market. There's a lot of movement between risks, between London and the US. As a result, we are most dedicated and most focused right now on the UK. And you can see that not just from an organic respective but from some of the acquisitions we've done, whether it's for GeoInformation, Helix, even Arium is from the UK.

So, we think we are starting to make a difference. And we're very much focused on bringing that opportunity, I will call it that third dimension, to the cube here into a positive and profitable light here over the course of the next couple years.

Maybe that's more than you expected, Andre, but we really care about this, actually. You tapped into something that we do a lot of work on.

Thanks.

David Chu of Bank of America.

Last quarter you highlighted that there were some delays in implementation of contracts that have already been signed. Can you just provide an update on this?

Yes. I think we are progressing as expected. That was really a comment as it related to the revenue that would be received in 2016.

Okay. Got it. And then in regards to Wood Mac, you didn't lose too many clients despite lower oil prices in 2016. So, does this suggest that we shouldn't expect a meaningful lift to client count this year despite higher oil prices?

I'm sorry, you cut out for just a second. We shouldn't expect -- could you repeat that part?

A significant lift to client count this year despite higher oil prices.

I actually think we have expanded -- and I know that Steve Halliday spoke about this on investor day -- we've actually expanded our customer base fairly significantly through some of the new solutions and companies that we brought into the Wood Mac mix. So, actually, what we're looking to do is we're looking to grow those customers into broader solution purchases throughout Wood Mac. I think you have to think about the customer base a little more broadly than just the core you might have thought about when Wood Mac first came into the family.

Okay. Got it. Thank you.

Gary Bisbee, RBC.

If I could just go back to the international insurance strategy and opportunity over time, it seems to me that the key to the US business, or one of the keys, is certainly the consortium data model that you have built. Unless I'm misunderstanding this, you really haven't had success creating organically the same level of consortium data set to be the core in any other market. I know you've talked about doing that successfully with the Argus business in other geographies. So, why have you not been able to do that? What is the gating factor? And maybe more forward-looking, optimistically, what's the outlook for doing that to deliver the kind of business that you have here in the US over time? Thank you.

Let me just put your question in a slightly different context, which is, we continue to feel the proprietary data is an advantage and one that we always pursue. We recite it as one of the four distinctives. So, it's always there in our minds.

There are two ways you can build a proprietary data set. One is, you can have an a priori discussion with the market you are trying to serve and essentially get agreement that, let's all join hands and take the plunge together and start putting our data into one place where we haven't previously put it. That's the history of our early roots in the insurance industry. Argus has proven to be very effective at doing that.

Wood Mackenzie is always about proprietary data and it ends up being a consortium. But want to relate it now to the second way that you can build a data set, which is you can also go customer by customer, and you provide them solutions. And as a part of having earned their trust, you ask for the opportunity to use and repurpose the data which is flowing through your application.

We do it both ways. We have always done it both ways. In some markets, it may be that we can lead straight to the consortium. Argus has had particular success at that. And in other markets, whether they are defined by vertical or geography, we may have to do more of the second method, which is on a customer-by-customer basis.

I just want you to have that perspective because we never lose sight of the goal to create proprietary data assets. It's more a question of how you go about it.

Specific to the insurance industry, what goes on, particularly if you look at especially Europe, is you have got differences in terms of both regulation and market structure. And, of course, those two things go together. Regulation has an effect on market structure. And essentially European primary P&C markets generally tend to be more concentrated. So, the larger share player is naturally going to say -- let me think about it a little bit more before I make my data available.

So, that's really just a condition that we deal with. But we are not deterred in the least in terms of trying to move towards proprietary data asset. It's just the pathway may be a little bit different.

So, what are the long-term implications about the potential profitability of an insurance business overseas given that concentration? Should we read into that it's unlikely even at scale to achieve the margins you have done here in the US?

No, I would not draw that conclusion. If you look of the most profitable parts of what we do, whether it's in insurance or other places, there is a very nice mix of businesses which are built on a priori consortium data and businesses which are not built on a priori consortium data. So, you can get there both ways.

Okay, great. That's helpful. Thank you.

There are no further questions at this time. I will turn the call back over to the presenters.

Okay. Thanks, everybody, for your time and your interest today. I know that we're going to be following up with several of you even later today. We're going to have events in the course of the coming months. Some of you will come see us in the office and we're looking forward to being with you. So, thanks for your time today.

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