Verisk Analytics Inc (VRSK) 2017 Q1 法說會逐字稿

Good day, everyone, and welcome to the Verisk Analytics First Quarter 2017 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 EVP of Investor Relations, Mr. David Cohen. Mr. Cohen, please go ahead.

Thank you, Teresa, and good day to everyone. We appreciate your joining us today for a discussion of our first quarter 2017 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. The earnings release referenced on this call as well as the associated 10-Q can be found in the Investors section of our website, verisk.com. The earnings release has also been attached to an 8-K that we have furnished to the SEC. The earnings release contains reconciliations of several non-GAAP measures, which we'll reference on today's call. 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 yesterday's earnings release, today's call may include forward-looking statements about Verisk's future performance. Actual performance could differ materially from what is suggested by our comments today. Information about the factors that could affect future performance is summarized at the end of our press release as well as contained in our recent SEC filings.

Now I will turn the call over to Scott Stephenson.

Thanks, David. Good morning, everybody. Yesterday, we reported an unusual quarter, with a number of items that we don't expect to recur that affected us at a moment in time. We are comfortable that growth will be better the rest of the year and into 2018. For the full year of 2017, we continue to expect combined insurance and financial services revenue to grow about in line with the historical trend. Reported revenue grew 2% for the quarter. Organic constant currency growth was 2.5%. Profitability remained strong, with total EBITDA margins around 49%. We chose to grow expenses at a measured pace in the quarter to support future growth. Diluted adjusted EPS declined about 1% as a result of unusual conditions influencing revenue growth. In spite of this, free cash flow in the quarter was up about 12%. Revenue growth was muted because of onetime true-up revenue in Decision Analytics in 2016, several contract completions at Argus and the cycling through of WoodMac contracts that were signed in the depth of the oil commodity downcycle. Looking ahead, our confidence is based on new contracts and new solutions, layered on top of the stability our subscription revenue provides. Specifically, we expect new sources of insurance revenue growth, several new Argus contracts where the signings slipped out of the first quarter and moderating effects of the commodity and currency headwinds as we move through 2017. We were pleased that in our resource businesses in the quarter, we saw a healthy and encouraging growth in contract signings for subscription products. Our teams are working hard on all the new solutions in which we are investing and long-term opportunities remain robust. We are focusing on both acquiring talent and shaping our workforce so that it reflects the right mix of capabilities to run our business. We are also investing in our new solution opportunities. Because we're confident in the near- and the long-term revenue outlooks, continuing to invest in our people and innovation is the prudent course of action. We were pleased to continue repurchasing our shares through our longstanding program, an indication of our enduring confidence in our business. We bought 1.3 million shares for a total return of capital of $104 million in the quarter. At March 31, 2017, we had $532 million remaining under our share repurchase authorization. With leverage below our 2.5x reference level, we have plenty of capacity to make strategically relevant acquisitions as well as additional repurchases.

During the quarter, we spent $76 million on acquisitions, bringing trailing 4-quarter total acquisition spend to $150 million. Since last quarter's earnings call, we closed the acquisition of Fintellix, further extending Argus' international end markets and enhancing our capabilities in global bank regulatory compliance. The acquisition of Fintellix positions Argus to expand our data hosting and regulatory platforms and better address the increasingly complex needs of our clients. We will continue to focus on M&A that helps drive our strategy and embodies the Verisk distinctives. At Investor Day in December, we began telling you about 20 internal investment opportunities we are funding to drive valuable solutions for our customers and growth for our company. These are promising new solutions, some of which have the potential to contribute significantly over a 5-year time horizon. These major initiatives have their own project champions, at least one anchor customer and dedicated teams. They involve machine learning, telematics, the Internet of things, high-resolution imagery, predictive fraud modeling, claims automation, digital marketing and alternative energy analytics.

While the revenues in most cases will be slower to ramp up, the investments are already under way. We have identified these opportunities, which cross all our key vertical end markets as likely to generate attractive returns over the 5-year planning horizon. We intend to move with speed and focus on these compelling innovation opportunities. We're running our game plan of innovation driving organic revenue, which will result in the delivery of free cash flow growth. Our businesses are strongly aligned with the Verisk distinctives of: one, unique data assets; two, deep domain expertise; three, first-to-market innovations; and four, deep integration into our customer workflows. With these come network effects, scale economies and a large percentage of subscription revenue. From this enduring foundation of strength, we are highly confident in the ability of our people to execute our strategy and plans, which ultimately relate to serving and adding value for our customers. You should expect our results to ramp as we move through this year and we are even more encouraged as we look to 2018 and beyond. So with that, I'm going to turn the call over now to Mark for some additional comments.

Thank you, Scott. Across our businesses, which serve the property and casualty insurance industry, we have several key themes, including vertical big data, industry automation and digital engagement. While the headline growth across our insurance businesses was a bit below trend during the quarter, both the underlying performance and outlook for the rest of the year and beyond is encouraging. First, growth in the quarter is reduced by last year's true-up revenue, which did not recur in 2017. Second and most important, the pricing environment and the competitive landscape remain consistent with the past. Third, as we look at the core solutions in each of our businesses, they're growing well. For example, in our catastrophe modeling business, the dynamics in the reinsurance industry continue to be challenging. That has affected the cap on in consulting businesses. However, as we look at the majority of what we do there, extreme event modeling, we are growing in the high single digits as we continue to take market share. Big data methods integrated into our platform are very compelling to the industry.

Looking at our claims businesses. Our 2 largest solutions related to repair cost estimating continue to grow in the mid- to high single digits. This is a good example of continuing industry automation. And of course, fraud is evergreen, helping our antifraud-related solutions continue to grow nicely. As a final example, in our personal lines underwriting business, where our solutions are well-established but still newer to the market than some of our competitors, we're making good progress in innovating and meeting market share. We're applying big data methods, which we expect will be a key differentiator even as we help our customers digitally engage more effectively with their customers.

Finally, in our important heritage ISO business, our normal course price increases went into effect in January and we're pleased with the uptake of our newer solutions. While many of you may think of the ISO solutions business as a steady, stable grower, which it is, we're really excited with the addition of new people who are helping us push forward with innovative solutions. These are allowing us to address parts of the end market where we haven't historically served, but where we see a lot of opportunity to help our customers solve tough problems they face. As we look at some of the newer things we're doing, including expanding into international markets and with the recent acquisition, there's a lot, which is very encouraging. With that, let me turn it over to Eva to cover our financial results in more detail.

Thank you, Mark. In the first quarter, we grew revenue and EBITDA on a comparable basis to the prior year while also investing in solutions with meaningful long-term potential revenue streams. Our growth in the quarter was below trend as several headwinds affected us at the same time, consistent with our comments on our fourth quarter call and in presentations earlier this year. Currency hurt revenue results in the quarter by about $7.5 million. As we move through the year, we're confident that revenues will improve. Revenue in the quarter grew 2%. Organic constant currency revenue grew 2.5% and 3.4%, excluding the prior year true-up revenue. We have included a new table in the press release to help you see the acquisition and FX results for each of our revenue lines more clearly. As a reminder, organic constant currency growth excludes the contribution from recent acquisitions and reflects current period exchange rates applied to prior period revenue. Total acquired revenue in the quarter was $5.3 million.

Within the Decision Analytics segment, revenue grew 0.1%. Organic constant currency revenue growth was 1.5%. This quarter, insurance was the fastest-growing vertical and also the largest contributor of dollars to growth. Underlying the results are the continued resilience in our insurance business and some timing in our financial services revenue growth. Decision Analytics insurance revenue grew 4.1% in the quarter. Last year, it had around $4 million of onetime true up revenue and adjusting for this, organic constant currency revenue growth was 6.5%. Growth was led by strong performance in underwriting solutions. Claims analytics, loss quantification and catastrophe modeling solutions also contributed to growth in the quarter. We've spoken about reinsurance having an impact in some areas on -- in terms of growth, but we are pleased that those trends aren't worsening and that the underlying growth in our subscription solutions and cap modeling remains very good, as Mark mentioned.

Customer retention remains very high and we are confident in our ability to continue to deliver growth. Energy and specialized markets category revenue declined 5.9% in the quarter. On an organic constant currency basis, revenue declined 2.1%. While continued energy end-market headwinds and the British pound impacted revenue in the quarter, as expected, both of those trends have started to improve. The benefits will be over time, given the multiyear subscription nature of the majority of that business. The WoodMac team continues to do a great job managing the business to outstanding relative performance. The category revenue growth was reduced also by a decline in environmental health and safety solutions due to lower demand following the late 2015 completion of GHS standard-related implementation.

Financial services revenue declined 0.5% in the quarter. The recent acquisition of Fintellix closed on March 31 and is contributing to revenue in the second quarter. Strong growth in media effectiveness and good growth in core banking solutions were offset by a couple of long-term government customers and a noncore customer who concluded their contracts in the fourth quarter. Those combined contracts contributed about $11 million for the full year 2016. Additionally, we typically see a seasonal step down after Q4, which did occur this year as well. We remain optimistic about delivering growth in 2017 and building on what is a great dataset and analytic capability.

Risk Assessment revenue grew 5.4% in the quarter. Organic constant currency revenue growth was 4.2%. This stable growth demonstrates the value to our longstanding insurance customers as well as contributions of new solutions that are in an early stages and the recent acquisitions. Industry-standard insurance programs revenue grew 5.9%, reflecting our 2017 invoices and continued contribution from newer solutions such as predictive models and electronic rating content. While still early, we are encouraged by the strong efforts to drive new product development in this part of the business. Our property-specific rating and underwriting information revenue increased 3.5% in the quarter. Growth was led by subscription revenues. We have some components of this line that are purchased transactionally, which is where we are seeing more variation.

EBITDA decreased 1.1% in the quarter to $246 million. The reported decline was a result of timing of revenue related to operating expenses, legal and acquisition costs, and the prior year true-up revenue in Decision Analytics insurance that occurred in the quarter. The combined cost of revenue and SG&A increased 5.9% or $15 million in the quarter. The increase was just 3.3% on an organic basis as we continue to manage expenses. EBITDA margins as reported were 48.9%. Margins were reduced by about 80 basis points due to acquisitions and about 60 basis points due to legal and transaction fees in the quarter. Total acquired revenue -- sorry, total acquired EBITDA in the quarter was breakeven. Acquisitions that we are doing are close to the core with well-defined paths to top line growth and margin expansion. Margins were also impacted in the quarter by our decision to grow expenses to support a multiyear view of revenue expectations as well as investment opportunities we've been discussing with you.

Margins by segment were affected by rebalancing of our technology resources to reflect internal priorities. As our Decision Analytics businesses expand the data sources they own and that serve as the foundation for their solutions, our data storage needs are growing.

Reported interest expense was $28 million in the quarter. Total debt was $2.3 billion at March 31, 2017. Our leverage at the end of the first quarter was 2.2x, below our 2.5x reference level. Our reported effective tax rate in the quarter was 32.5%. Adjusted net income in Q1 decreased 1.6% to $125 million. The average diluted share count was 170.2 million in the quarter and we bought about 1.3 million shares in the quarter at an average price of $81.24. Our repurchase program has been successful to date, generating annualized IRRs above our cost of capital. On March 31, 2017, our diluted share count was 169.4 million shares. Adjusted EPS, on a fully diluted basis, was $0.74 in the quarter, a decrease of 1.3%. Diluted adjusted EPS from continuing operations decreased because the quarter's unusually modest revenue growth was more than offset by a higher tax rate and currency effects. Net cash provided by operating activities from continuing operations was $318 million for the 3 months ended March 31, 2017, an increase of 12.8%.

Capital expenditures increased 22.9% to $31 million for the 3-month period ended March 31, 2017. CapEx was 6.2% of revenue year-to-date. Free cash flow increased 11.8% to $287 million for the 3-month period ended March 31. Free cash flow was 116.7% of EBITDA as we continue to collect more cash in our seasonally strong Q1. Growth in free cash flow was driven by strong working capital management, highlighting an important aspect of our business model. Free cash flow remains an important metric for measurement of driving enterprise and, therefore, shareholder value.

As you think about your models for 2017, currency will continue to be a headwind in 2Q, moderating a bit as we move into the second half based on current exchange rates. To help you look at the FX impact, the following 2016 total revenues are restated at the March 31, 2017 rate. If rates were unchanged from March 31, 2017, these would be the base for the organic constant currency revenue growth for the remainder of the year. Most of the FX impact falls within the energy and specialized revenue line items in Decision Analytics.

For 2Q 2016, the revenue would have been $490 million versus the reported $498 million. For Q3 2016, it would have been $494 million versus the reported $498 million. And for Q4 '16, the revenue would have been $505 million versus the reported $506 million. You'll also recall that merit increases go into effect April 1, which typically creates a seasonal step up in the expense base. So there's a natural step down in margins from Q1 to Q2, all else being equal. The net of many of these factors is that we continue to expect growth to improve as we move through the year, particularly in the second half. In addition, we expect fixed asset depreciation and amortization of $130 million to $135 million, up from what we expected last quarter, as we were able to move projects into service faster than we had planned and amortization of intangibles of about $95 million. Based on our current debt balances and interest rates, we expect interest expense to be around $113 million. This includes noncash amortization of debt issuance costs. We estimate the tax rate will be in the range of 32% to 33%. And in the adjusted net income calculation, we will continue to use 26% for the tax effect on intangible amortization. And finally, we expect the diluted weighted average share count of about 171.2 million shares. We look forward to ramping results through 2017 and beyond. We are excited about the opportunities to invest as we work to drive long-term free cash flow. We remain confident that we have the financial strength and capital structure to support investment for the long term. We also continue to appreciate all this support and interest in Verisk.

(Operator Instructions) And with that, I'll ask the operator to open the line for questions.

(Operator Instructions) And your first question is from the line of Tim McHugh of William Blair.

First, I guess, just wanted to follow-up on Scott's comment that, I think you said, for the full year you expect insurance and financial services to grow consistent with history. But I think you also -- given the loss of those contracts, can you help us understand, I guess, more specifically what you mean by consistent with history? And I guess, can you see Argus get back to the growth rates? I mean, that implies a pretty significant growth rate, so any more color, I guess, on the recovery from here?

Right. Well, one of the things to know about Argus is that it is sort of, I would say, a constantly dynamic environment in the sense that we are able to, and are, reaching out to new customers consistently. And so the right way to think about the business is that the customer list grows. There were these rotations of the government customers that we noted for you. But it is a dynamic set of customers as well as a dynamic set of offerings where the media effectiveness solutions are really finding their mark. And so it will be a combination of new names on the customer list and increased levels of spending with customers that are already on the customer list.

Okay. And I guess mathematically, I think, in the past, insurance and financial services have combined to grow kind of 7% to 8% in the last few years. Is that the number that you're thinking of?

Yes, that's exactly what we're saying.

And is that an organic or including some of the acquisitions?

Organic.

And your next question is from the line of Jeff Meuler of Baird.

On financial services, it seems like growth or revenues maybe are more dependent on large projects than I previously appreciated. So just -- how much -- how many large projects or what's the exposure to large projects you still have in the revenue base there? And I heard that some slipped out of Q1, but just what's the visibility into the pipeline? And then I guess more importantly, how do you think about the long-term growth rate for Argus?

Yes. So let me start with sort of the second question first, Jeff. We remain very positive about Argus' intermediate and long-term growth. The strength of where we start from, which is a very unique insight into patterns of consumer spending, we are continuing to find very good ways to commercialize that. And we are also finding ways to take the platform and expand it overseas. And so those trends are going to continue, basically. And so we feel very good about the growth profile. There is -- as companies become -- meaning our customers, become more aware of and aligned to the opportunity that they have to make use of these newer kinds of data analytics that they haven't made use of before, there is -- there are moment-in-time effects where they kind of get into the new methods and so, you do tend to get a bit more lumpiness when that happens. It's really just the nature of the beast. And the rotations out by, for example, the government customers, I think are very, very specific to their situations and their conditions and really don't reflect the overall commercial potential of what's here. But there is that effect even inside of what end up looking like subscription revenues, because there is sort of a moment in time at which customers get into the new methods and that will sort of create a lump of revenue at a moment in time.

Okay. And then in terms of the moderating industry headwinds that you called out, I heard Eva's comment about reinsurance, I guess, stabilizing. But could you just broadly characterize your view of the insurance end market right now? So I guess reinsurance stabilizing, but what are your thoughts on other areas of the insurance ecosystem headwinds getting better or stable, et cetera?

Sure. This is Mark. Good question. So let me start with the reinsurance side of things. So clearly, it's a very soft market from a reinsurance perspective, which puts pressure on our customers. That remains. At the same time, what we have highlighted is, there's a lot of industry consolidations. When industry consolidations happen, that also kind of interacts with our contracts with what is now 1 as opposed to 2 entities. That headwind is kind of almost cycled through. So that's good news with regard to cycling through. We've addressed kind of those concerns and how we want to contract with customers going forward and what we're also seeing is some volumes back into, what I'll refer to as, securitization market. We see customers kind of ramping up to continue to do businesses they always have. And as they look to expand and as they look to basically grow their businesses, both on the insurance side as well as the reinsurance side, they're looking at new avenues whether it's cyber as an example. How they're going to move their books to new, what I'll refer to as, casualty type of extreme events? So that's a good constructive approach for the industry, and we're kind of on the cutting edge with a lot of that. So that's a positive. I would say to you that I don't see a lot of dramatic change inside the insurance industry except for the ones I've highlighted in the past. There is a tremendous amount of technology -- InsureTech, that is happening. People are installing new systems. They're transitioning over. They're really looking to do the big data analytic thing. They're really looking to do digital engagement because people expect kind of better online engagement, like they would with an Amazon or when they're buying product on the web. All of that has created a nice opportunity for us to get involved in those kind of those projects to redefine how they want to see the future. So tough time but good opportunities for us in light of the change that's happening. So (inaudible)

And your next question is from the line of Manav Patnaik of Barclays.

My first question is, I guess in the past, you've given your expectations for insurance in that same 7% to 8% cap, and then financial or Argus in the mid-teens. And now, you're sort of grouping them together and giving that guidance and -- from the comments, it sounded like you already reiterated your confidence in Argus. And so is the missing piece here then the natural insurance slowdown until all your investable opportunities, whatever, start coming to fruition? Is that how we should think of it?

No. Manav, it's Eva. I'll just -- maybe I'll just take it up a level. Just, I know we always try to have discussions at very detailed levels. But fundamentally, I think what we're trying to tie our confidence to in the statements that Scott made around insurance and financial combined and the growth targets we have there is we've made comments in the past about our overall long-term growth targets organically for Verisk Analytics. And that -- the statement that Scott made ties very closely to that. Obviously, at the current moment in time, energy's at a moment where it's not at those levels. I think we've talked about that. I think the team is doing a great job. So really, how we've dimensioned it, I would think about it that way because we -- as Wood Mackenzie works through the energy cycle and is doing a great job, putting it in that overall bucket at the moment in time would not be appropriate. So that's really what we're trying to message when we're talking about those 2 on a combined basis.

Okay, got it. And then, Scott, of those 20 opportunities you mentioned a bunch of different, I guess, bigger headlines on what -- the stuff you're working on there. I think we've heard of telematics and imagery before. But is there any hierarchy or any sort of opportunity that stands out more than the others? Because some of the stuff, like you mentioned, like machine learning and Internet of Things, seem fairly broad.

Well, the way that we're going to provide for our growth near and long term actually is to operate on a number of fronts. And you've got some themes like Internet of Things broadly, like cyber as a theme, where the use cases -- the path to commercialization is still sort of emerging. But that doesn't mean that the ideas are anything other than very good ideas and ones that we feel like we have special contributions to make. But in the sort of intermediate term, 2 themes that are -- the ones that you've heard us talk about a lot, actually, and we really do have a lot of enthusiasm for are the interpretation of remote imagery, which we think is a very important theme for any number of reasons, including remote imagery and the interpretation of it can apply across multiple verticals and, actually, multiple geographies. And the other one that I would point to is, in fact, telematics and especially vehicle telematics where we just -- we are -- we can see, in our own experience, sort of the rising volumes of data and the increasing attention to those datasets and those analytics among our existing customer base. So you've heard us talk about those 2 a lot. But that doesn't mean that they're tired, in any sense. In fact, we think we're kind of in the early, early stages of both of those being important inside of our business.

And your next question is from the line of Hamzah Mazari of Macquarie Capital.

Just a question on the energy business. Could you remind us how -- what percent of your contracts are sort of multiyear? And do you see energy getting worse here? Or is that just primarily currency?

Yes. So, on the first question, I would say it's roughly half that are multiyear. And I think we've talked about in the past how we pick moments in time where we're responsive to customers and also market conditions where we choose to pull those out or shorten those. And what I would say is, just with regards to WoodMac, we do continue just in the reported results to see some lag effect from the customer management in previous periods. But as we look at the business signing today, we're really seeing good growth in renewal signings, cross-sell, we have existing products, we have new solutions added from acquisitions over the past year or so. So we like how the year is shaping up so far.

Great. And then just a question on capital allocation. Leverage is pretty low. It doesn't seem like there's any significant scale deals outside of the current verticals that you're in. Maybe if you could just frame for us your appetite to put on a dividend here, given your highly reoccurring revenue base. And then the -- and with regard to that, the $100 million buyback. Is that a run rate we should expect going forward?

Yes. So let me start with that. Eva might want to add a little something to this. But I want to go back to kind of the premise of your question. We actually have always seen the M&A program as being sort of the complement to our program of internal investment. One of the values that we believe that we bring to our investors that is unique is that we have hundreds of people walking the halls of our customers on a daily basis. And being in such close contact with our customers, we're able to see the solutions that are making a difference for them. First and foremost, our own, of course. But we're actually able to see other third parties and knowing where we think value lies and what our strategy is about and having this intelligence in terms of what else is going on in the market, we will always lean into the program of M&A. And in fact, we've -- if anything, we've really redoubled our efforts to enlist everybody to be a part of the M&A team. And so we don't see it as an -- as a world, a situation where there isn't opportunity. In fact, we think that there is opportunity. So that -- I just need to start with that because the way that we think about capital, we certainly care deeply about deploying capital effectively. The program of M&A has been highly productive for our investors and we believe that it will continue to be. We're very comfortable returning capital and we've done so and we've done so steadily. Whatever is the right way to deploy capital is what we're going to do on behalf of our shareholders. To date, it has not occurred to us that the dividend was necessarily a part of that mix. We ask the question routinely. We'll continue to ask the question. But so far, we've -- I think you've seen in our behavior that we're not only comfortable returning capital in the form of buybacks but we have done so and I think you should continue to expect us to do so. So there will be a balance there, there always has been a balance there and there always will be a balance there.

And maybe just to answer your specific question about run rate, I think just tying into how Scott described our capital allocation. Our first filter that we look for is buying interesting companies that meet our distinctives that add to growth, that add to customer solutions. And then after that filter is put in place, the next filter is our stock repurchase program and that's going to be keyed off, as it always has been, the value of the stock at the moment in time and we are managing that not to accretion dilution but rather actually to the returns like our investors would as well. So when you ask about run rate, we don't actually design our program as a run rate program. It's going to be a function of that initial filter around M&A and obviously, I think, as you know, M&A isn't sort of quarter by quarter. You chunk it in. And so that repurchase rate will vary across the year depending upon what that filter and what that pipeline looks like.

And your next question is from the line of Andrew Jeffrey of SunTrust.

As I think about Verisk and my experience with the company, I would describe the business -- the insurance business generally as being relatively unexposed or underexposed, I guess, to insurance end market fundamentals. I wonder if you can comment, sort of qualitatively, on whether or not you think changed and accordingly would it -- does it influence the type of products you're developing, the time to market, our expectations for return on the investments you've been making and so forth. So I appreciate the comment on the reacceleration of revenue growth. I just wonder if there's something that's sort of fundamentally changed in the relationship between Verisk's insurance business and the end markets it serves.

Yes -- no -- I -- we really don't think that and as you would imagine, we actually are very alert to that and are -- would be quite sensitive if we thought that there was something there. But -- No. Actually, I mean, if you look at industry structure there -- I mean, there's like one larger merger that is sort of in the process of ratcheting through. And as we've discussed many times on these calls and in other forums, when something like that occurs, where those 2 companies are concerned, there maybe a moment in time adjustment, but we -- I mean, that's kind of normal course of business from our perspective. And the regulatory environment really is not changing. It's not particularly dynamic. And so kind of from that perspective, the environment in which we do our business is more or less the same. When I talk to the chief executives of insurance companies, as I do routinely, what they're really about is changing their methods and trying to find ways to grow their businesses. That's fundamentally what they're giving attention to. And we stand in that stream of activity for them. Do they -- are they -- do they have healthy amounts of self-respect and want to make sure that they're getting ultimate value from a partner like us and do they like to talk to us about the invoices that we send them, et cetera? Sure. And they always have. But I don't really think -- if you go back 15 years, you could find moments when premiums went up pretty substantially year-over-year. That has not recurred for quite some time now. So our mission is the same as it's always been, which is to do a fantastic job of relating to our customers and bringing them new sources of value. I think they're as open to that as they've ever been. I think that we're more innovative than we've ever been. And that's really what's going to determine the outcome as we go forward. I will say, we definitely need to keep our feet moving. Their issues modify and change and we need to be right there as they do. So it's not a question of staying where we are. We have to be extremely energetic. But I think -- I don't think anything has changed in terms of our standing with them.

Okay. And if I play devil's advocate and say, okay, Verisk has been investing in a lot of those new solutions -- which I think you enumerated, Scott -- for a while. And you just had a tough quarter with some external pressure. Why is it now that all of a sudden, at least it feels that way from the outside looking in, some of these new solutions gained traction? Are there specific contracts or customers to which you can point that create sort of a coincidental inflection point in the growth from some of these new offerings?

Well, that's -- that is why we have the view that we have of the rest of '17 and beyond is we know specifically what is going on in the business, specific customers, specific contracts and so yes, I mean, that's -- whenever we're reporting to you, whenever we make a forward-looking statement, it's on that basis. That's how we think about our business.

I'll give a little color, if it's helpful. I mean, one of the things that we try to do and always do is take a look at what's committed from the standpoint of contracts, what's implementing when and I think what we've seen is 2 things. About 2/3 of our kind of need for revenue growth is committed in the form of kind of contracted price escalation, contracted new products, contracted new customers and what remains is kind of a new sale type of target that is reasonable in light of what we've done in the past and reasonable in light of what we have in our pipeline. So we continue to feel good about the full year.

And your next question is from the line of Bill Warmington of Wells Fargo.

So I just wanted to delve a little bit more into Mark's good feelings about the rest of the year. So if we ended up at about -- see, it looks like 2.5% organic growth in Q1, you adjust for the true-up, you're probably at about 3.3%. So I wanted to ask about the pace of acceleration towards that 7% to 8% target, the 7% to 8% target being the level at which all businesses are firing on all cylinders. And are we thinking you could get there at the end of 2017? Or maybe we're thinking more at the end of 2018? I'm just trying to get a sense for the pace of the acceleration.

Yes. Just to reiterate, that was a 2017 comment. So just to say it again, the rate of organic growth for our combined insurance and financial services businesses, we think, will be on the historic trend, in that 7% to 8% range for the full year.

And as it relates to insurance, I'll reiterate to the extent that we think of the incremental growth that we need, about 2/3 of it, we believe, are committed in the form of contract with 1/3 or so of this incremental being let's go get it and that's new sales.

And, Bill, just to wrap on, I think you're asking a question about ramp. I think, you know the nature of our business where we have a large portion of subscription contracts which is a real positive for us. But that also means is a subscription starts July 1, that starts contributing then. So naturally, as you layer in subscriptions, those -- that layers into the growth across the rest of the year.

Okay. And then for my follow-up question, I wanted to ask about the international expansion opportunity. You've talked in the past about an opportunity in banking, also an opportunity in insurance. I wanted to know if we could get an update on that and also maybe talk a little bit about how cloud receptivity by the client base is playing into that?

Yes. So first of all, with respect to international, there are some -- we're presenting differently internationally than we used to. WoodMac has always been international. But I'm -- and actually, Argus has always had a strong dimension of that. But the -- I just want to underline the Fintellix acquisition and the additional reach that, that provides to the Argus franchise, which is really good news. Over on the insurance side, we are presenting credentials and presenting solutions at a level and to a set of customers that we kind of haven't before, basically. I mean, we were aware of them. They were aware of us, but we are now in a position to be able to make large proposals to name brand companies. We've always been able to do that in the reinsurance vertical. But now in the insurance vertical, we are increasingly positioned to be able to do that. It's really very exciting, actually. Nothing is going to occur overnight in vertical data analytic land the way that we do things. But we are quite encouraged actually by what's going on there.

And your next question is from the line of Andrew Steinerman of JPMorgan.

Scott, I was hoping it's okay to look back to 2016. Looking back to early 2016, Verisk thought the insurance vertical, in total, would accelerate for full year 2016 and then later contracts start seemed to slip in the insurance vertical didn't accelerate for full year 2016 and some -- what I want to know is the contract wins that you got from last year that you thought would ramp and then didn't ramp, are they ramping now?

Yes. It's all a part of the overall view that we gave you. I mean, we've got thousands of customers and it's depending upon which part of our company we're talking about. But -- so the effect, the overall effect in our business is the accumulation of a lot of different things that are going on. But fundamentally, the relationships with the existing customers are as strong as ever. We are pushing out internationally, which isn't yet an overwhelming effect, but it is, it's positive, it's constructive and new solutions continue to find their way. And it's really at the intersection of all those things that our results occur.

And your next question is from the line of Toni Kaplan of Morgan Stanley.

This is Patrick in for Toni. I wanted to go back to the stream of new products. How should we think about the relative commercial impact of the new products you're currently developing or rolling out across the insurance business as compared to the class of products you developed and rolled out over the last 3 years? I'm wondering if there are just fewer home runs left to hit in that market?

No. I don't feel that way at all. In fact, I think some of the newer solutions have probably above-average potential. And it may -- those of you who have sort of been with us for a while, if we keep saying the same things like remote imagery, analytics and telematics, that may sound like there's nothing new there. In data analytic land, particularly in vertical market data analytic land, it takes a while to get to the inflection point, and then you get to the inflection point. And so that's effectively the dynamic that work inside of our business. So don't misunderstand us going back to the same themes and as you try to interpret our growth in any particular time period, you may be trying to sort of create sort of a 1:1 equivalence. Solutions, when they finally find their mark, actually have an unusual inflection relative to where they began. And so as you would imagine, day to day, minute to minute, we're working absolutely as hard as we can to get established as well as feeding the pipeline with additional new solutions. So no, I don't -- it's not the case that the newer solutions have lesser potential than those that maybe we developed 3 to 5 years ago. I don't know if you want to add to that, Mark.

The only thing I was going to highlight, too, is I think we have a preference, like I assume our colleagues on the phone do, that we would prefer a subscription-type model. So as opposed to kind of going at it from a transaction perspective, we'd like to try and create long-term contracts with customers and the revenue rec on that is slower. So that is the way we feel that they'll use us for all of their transactions as opposed to selected ones, if you're going to try to price it on any transactions. So maybe a little bit of a patient philosophy but that's the way we typically work those types of solutions into our revenue mix.

And then at the Investor Day in December, you talked about a $2 billion TAM for Argus. I'm wondering if there are opportunities for you to go after that market in a bigger way, with incremental investments in sales or new product development or perhaps more transformative M&A?

It's sort of the reverse order on your question. The acquisition of Fintellix, for example, we really do believe puts us on a different foot in global markets. And there are other solutions, other, I would call them, kind of point solutions, data analytic point solutions, that relate strongly to things that we already do today that we are interested in thinking about and that would be a combination of buy and build. But otherwise, the way that the Argus business advances is basically, we present credentials to companies that aren't customers. They find out the speed with which they can begin to commercialize the insight that we bring them from a data analytic perspective. So in a sense, I agree with the tone of your question in that the more that we can do to present credentials to an ever-expanding set of customers, the more of that we can do the better. That said, I think, we've got a great team and I think we're doing a good job of that. But we're always leading into how can we take this wonderful platform and leverage it.

Your next question is from the line of Joseph Foresi of Cantor Fitzgerald.

I was wondering if you could talk about the margin outlook. Have you adjusted the costs based on the slow start? And how much of the margin outlook is dependent on the growth this year?

Yes. Well, thanks for the question. I think, as I mentioned, as we were talking through the quarter, we were modest in the growth in the quarter. Expenses grew about 3.3%. We are within that, investing in the new solutions and also making sure that we've got the capacity as revenue ramps. So I guess the way I would think about it is we don't manage those expenses quarter-by-quarter, because we are managing for the long-term growth. Certainly, as -- if you see revenue ramp, that's helpful to margins as we go through the year. But what we want to make sure that we're not doing is we're not being reactive to unusual, short-term events and disadvantaging ourselves for the long term.

Okay. And then on the energy front, how much of the rebound is dependent on oil prices and CapEx versus selling the new solutions?

It's a mix of both. But when we talk about pricing and we talk about the energy business, it's not the case that there's one-to-one correspondence between what the price of the commodity does and our growth opportunity. It is true that there has been -- the shape of the price curve over the course of the last couple of years is one that hasn't been seen for several decades. It's a very unusual moment. Actually, if you think about it, the WoodMac business, there were 2 once-in-a-generation things that have happened in the course of the last 2 years. One is that, the shape of the price curve is extremely unusual. And the other is Britain exited the EU and the effect that it's had on their currency. Those are 2 really big effects, both of which are relatively difficult to foresee. In spite of all that, actually, I think the strength that WoodMac has seen is more than it has ever been. But back to your specific point. I think that what you need is -- what we need is essentially where we're getting to, which is a stable environment, one where our resource company customers are making money, leaning into investments on the front foot, basically. They got, understandably, very defensive beginning late in 2014, when several of them had to borrow money to pay their dividends. So these very, very major macro effects. But as they wash out -- one of the things about Verisk is we're in the business of growing faster than the underlying markets -- vertical markets that we serve and we've essentially always done that. We've been doing that, 2016, 2017 we will -- I mean, that's who we are; that's what we do.

And your next question is from the line of Arash Soleimani of KBW.

A couple of questions. So first, I just wanted to ask, within energy and specialized, how much of the decline came from WoodMac versus environmental health and safety? And then just continuing on that question, how much of that was subscription versus transactional?

So if you were to look in the segment, you're right. Those are the 2 key pieces within there. Obviously, WoodMac is a larger business in our environmental health and safety business, although I would say that in the quarter its performance was better than that smaller business. So there's sort of a balance between the 2. As I said earlier, we still have some lag effects from previous periods in WoodMac. I mean, that's the nature of subscription businesses. And so that did contribute to a bit of the decline in the quarter. Also remember, you've got -- we've got a lot of numbers in front of you now. You've got 3 different growth rates per line. So if you're looking at the absolute reported, the currency effect from WoodMac would be the largest impact and I think I talked about, about $7.5 million in the quarter.

And then I have a question that's probably very, very, very long term in nature. But just as we look at technology that's making cars safer and that ultimately will even make cars drive themselves, which will increase safety even more, that could have a very negative impact on auto premiums longer term. I'm just curious how that impacts Verisk.

Yes. Let me take that on. I mean, clearly, that's on the minds of our personal lines of writers. The insurance industry as a whole, I think, has a view that that's going to make for a safer long-term environment for people on the road. It can save 1 million or more lives per year. And I think there's some views out there, you can kind of do your own research, that the personal auto premium could be something that looks maybe half of what it is today. I think those customers are looking to ways to kind of reimagine their business and I think a lot of it has to do with moving into what I'll call small commercial lines. So micro business owners work on the cyber side of things. That very much fits our model. That's very helpful. They want to try to move into what is kind of a personal lines flow, meaning just do it in an expert away without people involved, and they want to move that concept, which is on the personal lines side to commercial. So those fit well into what we're trying to help them do that. The other thing I think we should just remember as a whole, a large part of the risk throughout the world is either uninsured or underinsured. And I think that's the biggest opportunity for the industry as a whole. There's a need there, and I think the industry needs to find ways to ensure what is a very, very large market opportunity with better analytics and ways to assess that risk. So longer term, bigger picture, but (inaudible) respond to.

I would just add that one of the things that will always be the case is, almost regardless of the size of the segment, the participants will still need to understand where they stand relative to the overall marketplace and part of what we do is, we really help get a handle on what's affecting the whole space and also the relativity -- excuse me, the relativities between the players. That will be an enduring need. So it's not just the scale of the market. It's also the need to pick apart what's going on in the market.

And your next question is from the line of Jeff Silber of BMO.

It's Henry Chien calling in for Jeff. I just wanted to make sure I understand in terms of the trends in insurance in the Decision Analytics side. I understand there's a number of moving parts in terms of the revenue growth. Just from an earnings growth perspective, is that tracking sort of in line with your organic growth post or excluding the true-up revenue? And as a follow-up to that, in terms of your ramp-up that you expect from the new products in insurance, is that also the ramp-up that you expect in earnings as well?

Yes. So there're a couple of questions in there. So maybe just to start with. I think your first question is when you say profitability, I presume you're speaking on an EBITDA level. And what I would say is, I mean, what you see across the company is, we're managing expense growth to both fund the existing solutions as well as new ones and I would say that's the same within insurance. So I don't think you'd see dramatically different trends if you were to sort of parse apart the profitability by vertical, because we are investing across all of the verticals. I would also note that in the acquisition front, there are a number of new acquisitions. In the quarter, those were essentially across all the acquisitions breakeven. Those are things that we're clicking into our existing business and we think that those margins will ramp. So we have those 2 effects within the margin. And then, I think, your second question was with regards to new products and the profitability of those as those sort of click in. Generally, similar to the rest of our solutions, the whole idea of build it once, sell it a lot of times, the more you put on the top line, the greater the profitability expands. Mark, I don't know if you want to add anything additional about any specific solutions we're working on there?

So I think we were trying to address this a little bit before. I mean, I think we are seeing uptake in some of the remote imagery. I think we're seeing some uptake in our customers with telematics. I think we have good growth and opportunities internationally. The way we've contracted around that will be probably more subscription that it is of a transaction perspective. So as that uptake is more of a second half story, we would also see that as hopefully helping margins because what happens here is we've already invested in or are investing in those solutions. So it's just the overall dynamic of the nature of our business. Yes, there's a lot of costs that are there and they'll remain because we're investing and once we start the uptake in revenues, there's not a lot of variable incremental costs with new sales.

And your next question is from the line of Anj Singh of Crédit Suisse.

I think you folks spoke to some of the contract signings slipping out of 1Q for your energy customers. Is that just timing randomness perhaps? Or is this indicative of the end market that continues to stabilize? Just wondering if there's anything particular we should be taking away from that anecdote.

Yes, the comment was about the financial services segment, not the energy segment. And no, there is -- it really was just timing.

Okay. Okay, got you. And then another question on the 20 opportunities, Scott, asked slightly differently. Realizing these are longer-term opportunities, would it be fair to say that the internal augmentation or development focus is also primarily on remote imagery and telematics? Perhaps, if you can offer any color on which ones you've made the most progress recently aside from their good market traction.

Yes, it really is remote imagery and telematics. Those are the places where -- they both represent very large opportunities and places where we're seeing commercial response to what it is we're doing. So we've talked about those a lot. We continue -- we will continue for years to talk about those a lot because they're just that important. But there are a lot of things on the list of 20 that are very exciting across all the segments. And some of them are domestically based. Some of them are globally based. They all really rely on advanced data analytic methods and in many cases are being founded on new kinds of contributory data, unique data that will help us to do things we think others won't be able to. So it's an exciting agenda, basically. You get to a list like that by being close to your customers and understanding where their needs are going.

And your next question is from the line of James Friedman of Susquehanna.

Most of my questions have been answered. But, Eva, kind of housekeeping one. Could -- you were going kind of quick there when you were giving the adjusted Q2, Q3, Q4 '16 revenues. I was wondering if you could repeat that. What I mean was the $490 million, $505 million.

Yes. Sorry, if I was going too quick on that. So just to repeat. If we looked at 2Q 2016 and restate it at today's currency rates, that would've been $490 million, the reported number was $498 million. For Q3 '16, it would've been $494 million. The reported number was $498 million. And for Q4 '16, it would've been $505 million and the reported number was $506 million.

Okay. And could I just -- did that also exclude the true-up -- the true-up was [in the Q1] of '16, correct?

Correct. And as we've just reported, the reported number total translated at the currency rate.

And your next question is from the line of Gary Bisbee of RBC.

This is [Tom Hanson] in for Gary. I'll be quick. I guess just the timing of the Argus contract -- I guess for the deals, have those been signed already in the quarter and, I guess, are those new contracts with existing customers or were they -- some of those tied to some of the contracts that were completed in Q1?

Yes, those are existing customers and as we do multiple things for our customers, there's a layering of that. But I think, as Scott said, it's a timing issue and we feel comfortable and confident with that work moving forward.

Okay, and then, I guess, with the energy and Wood Mackenzie, obviously, there's still some lag from some of your customers and the multiyear deals rolling over. I guess, can you kind of give us some more color on whether you're seeing greater demand or usage in various regions or some of the pricing terms? Or are you guys looking to lock in into longer, more longer-term deals? Or -- maybe just give us some commentary on some of the improving trends you mentioned?

Yes. Well, a couple of different things in there. One is, the customer set continues to expand, as we've shared with you. The solution set continues to expand also where we're -- you've sort of known us as the people that can describe the global supply curve, which is extremely valuable and very hard to do and a very, very nice sort of starting place, a strong place to stand. What we will get increasingly good at is and more of our business will be about is the underlying technical conditions and helping our customers sort of navigate those as well. With respect to pricing trends, we're always just -- the WoodMac product set as all of our product sets, we're always stuffing more value in there and that's one of the things that is productive where pricing is concerned. So you've got that effect. So basically, new solutions, new customers and an improving environment where pricing is concerned. That's basically going to be the WoodMac story going forward. The currency effects will wash out and I do think that we'll see where this is the kind of thinking we're doing, but it maybe that as the environment is improving, we may actually want to be a little lighter on our feet and actually sort of pull in the length of the contracts so that we can -- as things move, we can actually enjoy it more in real time.

And your next question is from the line of Andre Benjamin of Goldman Sachs.

My first question on the energy revenue. I know we've asked a number on this already but, I guess, you mentioned that there were some contracts signed [at depths of] in the market and their lag nature to them. I wanted to specifically ask, are we, therefore, at the end of the worst of these lag contracts and you should actually see revenue growth improve? Or is that something we'll be playing through for the rest of the year? And therefore, growth really shouldn't pick up until closer to '18?

We would expect improvement as the year progresses.

Okay. And then 1 housekeeping question. Just on the M&A contribution from Fintellix, if you are sharing that, as we build our models?

Yes. Typically, for the smaller deals, we don't share that in advance. It will come in April 1. So you'll see the numbers as we report in 2Q.

And there are no further questions.

Okay. Well, thanks everybody for joining us. Appreciate all the questions and interest in the company. And we will be back. We'll be talking with many of you between now and then, but certainly look forward to giving you our second quarter report in the near future. Thank you for your time today.

Thank you. And this concludes today's conference call, you may now disconnect.