Oct 28, 2015
Executives
Eva F. Huston - Senior Vice President and Treasurer Scott G.
Stephenson - President, Chief Executive Officer & Director Mark V. Anquillare - Chief Financial Officer & Executive Vice President
Analysts
Timothy McHugh - William Blair & Co. LLC Andrew Jeffrey - SunTrust Robinson Humphrey, Inc.
Manav Shiv Patnaik - Barclays Capital, Inc. Jeff P.
Meuler - Robert W. Baird & Co., Inc.
(Broker) Toni M. Kaplan - Morgan Stanley & Co.
LLC Andrew Charles Steinerman - JPMorgan Securities LLC William A. Warmington - Wells Fargo Securities LLC Sara Rebecca Gubins - BofA Merrill Lynch Arash Soleimani - Keefe, Bruyette & Woods, Inc.
Jeffrey Marc Silber - BMO Capital Markets (United States) Andre Benjamin - Goldman Sachs & Co. Anjaneya K.
Singh - Credit Suisse Securities (USA) LLC (Broker) Paul L. Ginocchio - Deutsche Bank Securities, Inc.
Operator
Good day, everyone, and welcome to the Verisk Analytics Third Quarter 2015 Earnings Results Conference Call. This call is being recorded.
At this time, for opening remarks and introductions, I would like to turn the call over to Verisk's SVP and Treasurer, Ms. Eva Huston.
Ms. Huston, please go ahead.
Eva F. Huston - Senior Vice President and Treasurer
Thank you, Jackie, and good morning to everyone. We appreciate you joining us today for a discussion of our third quarter 2015 financial results.
With me on the call this morning are Scott Stephenson, President and Chief Executive Officer, and Mark Anquillare, Chief Financial Officer. Following comments by Scott and Mark highlighting some key points about our strategic priorities and financial performance, we will open up the call for your questions.
The earnings release referenced on this call, as well as the associated 10-Q, can be found in the Investor section of our website, verisk.com. The earnings release has also been attached to an 8-K that we have furnished to the SEC.
A replay of this call will be available for 30 days on our website and by dial-in. Finally, as set forth in more detail in yesterday's earnings release, I will 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 summarized at the end of our press release as well as contained in our recent SEC filings.
And now, I will turn the call over to Scott Stephenson.
Scott G. Stephenson - President, Chief Executive Officer & Director
Thanks, Eva. Good morning, everybody.
Before we turn to our third quarter results, I want to highlight two recent milestones in our journey. Forbes included Verisk in its list of the World's 100 Most Innovative Companies, and Verisk was added to the S&P 500 index.
Both of these achievements are recognition of the foundation that's been created over decades and the hard work being done by our colleagues to add value for our customers every day, and evidence of excellence at scale. Yesterday, we announced the exploration of strategic alternatives for our healthcare analytics business.
We've spent much time and thoughtful consideration of how Verisk Health fits within the broader Verisk. Our process of exploration has been underway for over a year and we are running a deliberate process.
Verisk Health is an excellent business with a large market opportunity. Given our strategy and global ambitions, along with current market valuations per assets of its type and quality, we may have an opportunity to both refine our strategic focus at Verisk.
We will update you on the strategic process in the future. Now on to some high-level results.
In the third quarter, we delivered strong overall results with total revenue growth of 23% and an increase in diluted adjusted EPS of 33%. Profitability was strong with adjusted EBITDA growth of 32% and margins that continue to be industry leading.
We grew the top line, excluding the healthcare analytics business and recent acquisitions, over 7%. On that basis, and excluding the gain on the sale of third-party warrants, adjusted EBITDA grew about 10%.
We are well-positioned to execute in the future, and we'll have more to say about that at our upcoming Investor Day in December. As we think about long-term shareholder value and capital allocation, an essential filter for us is the set of distinctives, which are part of the Verisk way.
These distinctives are: one, unique data assets; two, domain expertise; three, first-mover advantage; and four, deep embedment in customer workflows. These distinctives define successful data analytics businesses and will continue to inform our approach, and our long-standing approach for the allocation of capital, which is a mix of acquisitions and share repurchases.
We also remain focused on delevering to our long-term target of 2.5 times by December 2016 with progress in the third quarter. Even as we delever, we have flexibility to make acquisitions and return capital to our shareholders through repurchases of our stock.
Our existing authorization at the end of the quarter was about $190 million. I'd like to make several remarks about Wood Mackenzie.
This is a very unusual moment in the oil and gas industry. Even though a challenging energy market has increased the demand for WoodMac's analyses, our customers have reacted to the current circumstances by being very careful with all forms of spending, ranging from capital expenditure to more discretionary services.
We have certainly felt that impact most strongly seen in our non-subscription revenues, which have softened at this moment, and somewhat sooner than we had anticipated. And yet, I believe the true quality of WoodMac is shining through particularly brightly right now because of the current challenges.
This is a highly moded business providing must-have content to customers and doing so in ways that highly engage our customers. As a result, the challenging circumstances notwithstanding, WoodMac has grown 7% year-to-date.
I find that to be extraordinary performance under extreme circumstances, and I couldn't be prouder of my WoodMac colleagues. This business is even better than I thought it was at the time we bought it.
Renewal rates are extremely high, same-store use of our content is up around 25% year-over-year, channels for distributing our product are expanding and customers are being well-served. It is my view that the moat around this business is widening at this moment.
When customer spending patterns return to normal, we will be an even stronger partner to our customers and our growth will reflect this. In the intermediate and long term, I continue to expect this business to produce strong growth that equals or exceeds that of Verisk overall.
An investment analyst recently said it well. Businesses like ours are about very strong end-market positions and compounding organic growth.
WoodMac has proven that even in unusual and challenging circumstances, it can deliver both. I can also report that we are beginning to see all of the benefits that we expected, in addition to WoodMac's own performance.
The integration of WoodMac and Maplecroft has been achieved, and we are beginning to see the first examples of cross selling. WoodMac is serving as the hub of our supply chain thinking, and we have added oil industry experts to accelerate our work there.
WoodMac's global footprint is being used to strengthen and integrate the overseas operations of other parts of Verisk, and we are collaborating well to extend Verisk's strengths with respect to core competencies like large scale data integration. Speaking of which, at our upcoming Investor Day, you will hear more about our focus on our five core competencies, which are: number one, large scale data integration; number two, multitier, multispectral imaging; number three, data visualization and consumability with an emphasis on geolocation; number four, stochastic methods leading to prediction in complex environments; and number five, localization of solutions, including the sourcing of relevant local data.
During the past several months, our progress advancing our competencies agenda was well-aligned with the distinctives, as you would expect. For example, we announced General Motors, through its subsidiary OnStar, as the first auto manufacturer to sign on to the Verisk Telematics Exchange.
Auto insurers will have expanded access to connected-car data in an easily useful format, paving the way for new and innovative usage-based insurance programs. Insurers that have their own telematics models will also be able to connect to the exchange for data about their consenting customers.
The exchange will create new opportunities for customers who choose to deepen their relationship with auto manufacturers. More recently, we announced a new ISO ClaimSearch integration model for claim system vendors.
The model provides claims handlers an unprecedented interactive view of over one billion industry claims and allows them to navigate seamlessly across a series of interactive analytics in order to improve efficiency. This deep claims systems integration represents an important evolution of real-time claim analytics and processing and is an important part of a multiphase project to create a more intuitive, robust ISO ClaimSearch System that offers cutting-edge solutions fully integrated throughout the life of the claim.
Finally, AIR is collaborating with leading security, risk and cyber data providers to build an advanced cyber risk model to help the insurance industry better manage the evolving threat of cyber attacks. AIR will leverage terabytes of data gathered by a partner from sensors deployed across the Internet.
Another partner has provided AIR with historical infinite data on more than 16,000 breaches. In addition to probabillistic loss estimation, the AIR Cyber Risk Model will offer a set of deterministic scenarios that will allow companies to begin to truly understand their aggregated risk from large-scale cyber attacks.
We will continue to build out our solutions to benefit our customers in the industries we serve, further developing the core competencies aligned with the Verisk ways for distinctives. We view these as critical foundations for the most successful data analytics businesses and a lens through which we have made and continue to make our capital allocation decisions.
We're very confident in our path and our ability to execute. So with that, let me turn it over to Mark to cover our financial results in more detail.
Mark V. Anquillare - Chief Financial Officer & Executive Vice President
Thank you, Scott. In the third quarter, we again delivered both revenue and EBITDA growth while also investing for the future.
Revenue grew 22.7%. Organic revenue grew 7.3%, excluding the healthcare analytics business and recent acquisitions.
EBITDA grew 31.9% to $279 million. EBITDA margins, excluding healthcare, acquisitions and a $15.6 million gain on the sale of third-party warrants, were over 50% for the quarter and year-to-date.
Third-party warrants related to our ownership position in the EagleView. Within Decision Analytics segment, revenue grew 31.8% and 8.1% ex-healthcare and acquisitions in the third quarter.
Decision Analytics insurance category revenue grew and led the organic growth in the quarter both in percentage and dollar terms. Decision Analytics insurance revenue grew 8.6% in the quarter.
The increase was well-balanced across our solution areas and reflected the close integration of our teams as they serve our customers. Financial Services revenue increased 7.3%, driven by continued underlying demand for our core solutions and services.
Year-to-date growth was 30.2%, and as we noted last quarter, we continue to expect Argus to grow in the high-teens for the full year 2015. The underlying growth rate of the core business continues to track in the high-teens as well.
The variability around the quarters has been driven by our activity in the media sect of this space, an area we continue to see opportunity to develop and monetize. The healthcare business is tracking to our internal full year revenue and EBITDA forecast.
It is an excellent business in a growing market. Energy and specialized revenue increased 5.6% on an ongoing basis, reflecting continued success in our environmental, health and safety business.
Including the recently acquired WoodMac and Maplecroft businesses, growth in the category was over 400%. As a reminder, WoodMac's revenue contribution continues to be impacted by a purchase accounting reduction.
WoodMac's revenue, in pounds, grew 1% in the quarter and approximately 7% year-to-date through September. You'll recall that we indicated a conservative approach to our model for 2016 and into 2017.
For the more discretionary part of the business, some of those headwinds materialized sooner than we had forecast. However, despite these earlier-than-expected headwinds and because of the strength of the subscription business, we expect full year growth, in pounds, excluding deferred revenue impact, to be in the mid-single digits and modestly below our prior expectations.
Including the adverse impact of the exchange rates, we expect WoodMac's reported revenue under our ownership for 2015 to be about $210 million, lower than we have previously discussed. We continue to focus our efforts and resources on the long-term development of our business for the benefit of our customers and shareholders.
We are pleased with the work that Wood Mackenzie and Maplecroft have begun to do together. Risk Assessment revenue grew 6.4%, continuing to demonstrate the value to our long-standing insurance customers.
Industry-standard insurance programs grew 6.7%, reflecting our 2015 invoices which were effective January 1, and continued contribution from newer solutions such as predictive models and Electronic Rating Content. Our property-specific rating and underwriting information revenue increased 5.2% in the quarter.
This increase was driven by new sales and increased prices. As a reminder, sequential growth in the fourth quarter last year was higher than normal as a result of a few one-time items in the quarter.
As I mentioned earlier, EBITDA increased 31.9% in the quarter to $279 million, resulting in EBITDA margins of 50.7%. Decision Analytics adjusted EBITDA increased 49% to $177 million in the quarter as a result of acquisitions, growth in the business and lower professional services fees.
EBITDA margins for the healthcare analytics business were 27.6% in the quarter and 24.1% year-to-date. The third quarter 2015 EBITDA in Risk Assessment increased 10.1% to $102 million as a result of revenue growth and good expense management including the impact of lower cost resulting from the fourth quarter 2014 talent realignment.
Reported interest expense was $33 million in the quarter. Total debt, both short-term and long-term, was about $33.2 billion at September 30, 2015.
Our leverage at the end of the third quarter was about 3 times. We remain committed to bringing the leverage down to 2.5 times by the end of 2016.
Our reported effective tax rate was 32% for the quarter. This rate reflects the benefits of our tax planning efforts and the lower foreign tax rates.
Adjusted net income increased 35% to $146 million in the quarter. The intangible amortization in the quarter was lower than expected because of our updated valuation for the WoodMac-related intangibles and longer average useful lives.
The longer lives reflects the unique proprietary and embedded nature of the WoodMac data. The average diluted share count was 172.2 million shares in the quarter.
On September 30, 2015, our diluted share count was 171.8 million shares. Adjusted EPS on a fully diluted basis was $0.85 for the quarter, an increase of 32.8%.
Excluding the gain on the sale of the warrants, adjusted EPS was $0.79. Free cash flow, defined as cash flow provided by operations less capital expenditures, increased 50.3% to $414 million for the nine-month period ended September 30, 2015 including WoodMac.
This represented 56.5% of EBITDA. Capital expenditures increased 2.7% to $106 million for the nine-month period ended September 30, 2015 and were 7% of revenue.
We continue to expect CapEx to be about $170 million including WoodMac. As of September 30, 2015, our cash and cash equivalents were $169 million.
As you think about your models for the full year, including WoodMac purchase accounting from the time we closed, we now anticipate a diluted average weighted share count of 169 million shares, fixed asset appreciation and amortization of about $125 million and amortization intangibles of about $95 million, and we'll provide an update when the purchase accounting is finalized. In addition, for the fourth quarter, based on the current debt levels, we expect interest expense to be about $32.1 million.
For the intangible amortization add back and the adjusted net income calculation, we're using a 26% tax rate as we discussed last quarter. And finally, we expect the tax rate to be around 35% for fourth quarter of 2015.
Overall, we're pleased to report the WoodMac integration is proceeding ahead of schedule while executing our operational plans, and we're positioned well for profitable growth in the future. With that, I'll turn it back to Eva for comment before the Q&A.
Eva F. Huston - Senior Vice President and Treasurer
Great. Thank you, Mark.
Given the large number of analysts we have covering us now, we would ask that you ask one question and one follow-up. That will give more people an opportunity to ask a question during the Q&A.
And with that, I'll open the line to the operator to open for questions.
Operator
Your first question comes from the line of Tim McHugh with William Blair and Company. Your line is open.
Timothy McHugh - William Blair & Co. LLC
Excuse me. Thank you.
On Wood Mackenzie, can you just give a little more color? You, I guess, talked about non-subscription growth slowing, but did you see any slowdown, I guess, in the subscription side of the business, and I guess, any way you can help us kind of quantify more the different pieces impacting that?
Scott G. Stephenson - President, Chief Executive Officer & Director
Yeah. We're not breaking out those two parts of the business, Tim.
But I will say that the subscription revenue growth has held up very nicely, and the full year view and the quarterly view are both good and strong.
Timothy McHugh - William Blair & Co. LLC
Okay. And then in healthcare, I guess, one, your comment that it's tracking to your annual guidance or annual expectation, can you just elaborate?
I think it was probably slower than most people expected, and maybe we had the wrong view. But is there anything that's changed in the environment, whether demand or competition wise?
And secondarily, can you give us any sort of help with the profitability of that business as we think about the potential sale of it? Thanks.
Scott G. Stephenson - President, Chief Executive Officer & Director
Yeah. So let me take the first part of that, Tim.
So the comment that Mark made earlier was that the business is tracking with our expectations, meaning, our portfolio forecast for the business, and so that was his comment. With respect to the business, the environment is relatively unchanged.
The dynamic with the customers is relatively unchanged. As you know, there's seasonality in this business, and it's also the case that this business has more transaction volume than the rest of Verisk.
And so you find the timing can play a role in what happens. And that's fundamentally where we sit at the moment.
So, Mark, you actually commented on healthcare EBITDA margins a moment ago. So maybe you want to come back around.
Mark V. Anquillare - Chief Financial Officer & Executive Vice President
Sure. So just to clarify, the third quarter healthcare margins were 27.6%.
So hopefully, you have that in your math and I just will reiterate strong business, competitive nature, has not changed, I think, we are still currently well-positioned into a very nice, big market.
Timothy McHugh - William Blair & Co. LLC
Well, can I just ask is there any seasonality to that margin? I guess, as we think about the full year, I guess, a full year run rate or is that (20:01)?
Scott G. Stephenson - President, Chief Executive Officer & Director
Yes. So the healthcare analytics business in the third quarter was 27.6%.
Historically, because of some additional volumes that we've seen for what we refer to as the Medicare side of things, it has been a little bit bigger, maybe margined a little bit better in the second half. Year-to-date, we're at 24.1%.
I will tell you, though, there is a little bit of noise in there because of the transition of accounting from what we refer to as gross versus net. But hopefully those couple of factors will help you out.
Timothy McHugh - William Blair & Co. LLC
Okay. Thank you.
Operator
Your next question comes from the line of Andrew Jeffrey with SunTrust. Your line is open.
Andrew Jeffrey - SunTrust Robinson Humphrey, Inc.
Hey. Good morning.
Thank you for taking the question.
Scott G. Stephenson - President, Chief Executive Officer & Director
Good morning.
Mark V. Anquillare - Chief Financial Officer & Executive Vice President
Good morning.
Andrew Jeffrey - SunTrust Robinson Humphrey, Inc.
So I guess, with regard to RA, which is doing very nicely, can you talk a little bit about the sustainability of that faster organic revenue growth, say 6%, 6%-plus, and what exactly is underpinning that improvement over what we've seen in the last few years? Is it all invoicing, or is there some specific customer ROI call outs that are driving that?
Scott G. Stephenson - President, Chief Executive Officer & Director
Definitely not just invoicing. This is the time of year where we actually set the pricing for the kind of the industry standard program, rules, forms, lost cost, the part of it that relates heavily to just the overall regulation and structure of the insurance industry.
But we are working very hard to expand that suite of solutions, bringing new solutions to the market and growing newer forms of putting the content and the analysis out there. So predictive models are growing very nicely.
Electronic Rating Content is growing very nicely. We're searching for all opportunities to expand the business to international customers, and we've made headway on that front as well.
So it's broadly based, and we're very optimistic about the future profile for this business.
Andrew Jeffrey - SunTrust Robinson Humphrey, Inc.
Okay. And as a follow-up, just from a big picture, now that the strategic nature of healthcare is something you guys are thinking hard about, kind of down to three core businesses, in the long term, do you start to rebuild from there?
Are you looking for new areas strategically long term that are a good fit or is this really probably the right sort of core business set with which Verisk runs going forward?
Scott G. Stephenson - President, Chief Executive Officer & Director
Yeah. Thank you for the question.
And that is something that we've spent a lot of time on, and we feel very good about these three core verticals. And I think what you can expect from us is that we will continue to grow and expand inside of them.
Our thesis is, and I referenced this in my comments up front, that there are things that make Verisk, Verisk; those four distinctives. One of the things that I just feel so strongly about is Wood Mackenzie is absolutely aligned with those four distinctives.
And we'll do a better job of both feeding off of core competencies that we have at Verisk, but also feeding them. And so, for example, Wood Mackenzie is a business that definitely will benefit from our strong and growing expertise in multitier, multispectral imaging in a way that actually the healthcare business wouldn't.
Another comment along the same lines is that the global energy business is inherently global, whereas healthcare will always remain a domestic business. And so we think very hard about who is it that we want to be.
And I think that the right way to frame us is the verticals, the distinctives and the core competencies that I laid out for you. And we feel that the three verticals that you focused on are very, very nice steps with that, with all of that.
Andrew Jeffrey - SunTrust Robinson Humphrey, Inc.
Okay. Helpful.
Thank you.
Operator
Your next question comes from the line of Manav Patnaik with Barclays. Your line is open.
Manav Shiv Patnaik - Barclays Capital, Inc.
Good morning, guys.
Scott G. Stephenson - President, Chief Executive Officer & Director
Good morning.
Manav Shiv Patnaik - Barclays Capital, Inc.
So I just wanted to step back and just try to understand what changed, in a little bit more detail, so both WoodMac and healthcare. So with WoodMac, I mean, last quarter the energy environment was challenging as well, but it sounded like you guys were confident with the growth rate there.
So trying to understand the delta there. And on healthcare, I guess, I understand the rationale that it sounded like you said, you guys were looking at this over a year ago.
But I think around that time, you guys were pretty committed to the long term, like selling it wasn't in the sights, and I think you had that focus on Investor Day. So I guess what I'm really trying to get at is from last quarter to today, what are the real changes that have led to the WoodMac result and the healthcare decision?
Scott G. Stephenson - President, Chief Executive Officer & Director
Okay. So in order.
On WoodMac, the thing that I would call out for you is just that there are different profiles to how the energy market works basically, and we had said for some time that we thought that 2016 could represent some softness, and the question was what might be the timing. And we just found that the timing has been pulled forward a little bit, probably related to things that are going on with our customers as they make decisions about spending in light of the current environment.
And it's really that simple. On healthcare, we've been asking – well, we're always asking the question about the deployment of capital across everything that we do.
So even a year ago, we were thinking critically about what are the highest and best uses of our capital and how does healthcare fit into that picture? Since that time, what has happened?
Well, there has been a public offering of a company that is very analogous to ours. There has been the activity in the healthcare M&A market generally.
And we just take account of all of that basically, and with deliberation at a moment in time, we've drawn a conclusion about an exploration.
Manav Shiv Patnaik - Barclays Capital, Inc.
Okay. Fair enough.
And then just a quick follow-up. So just on WoodMac, how should we think about the trajectory of that 1% growth you called out in the quarter?
Is that where your initial 2016 expectations were or was that even worse than maybe what you had modeled there?
Scott G. Stephenson - President, Chief Executive Officer & Director
Yeah. So we're going to talk in more depth about WoodMac at our December Investor Day, and I would encourage everybody to come and be with us.
But what I would point you to, as Mark put out there, our view for full year 2015 and that's what we've said about it so far.
Manav Shiv Patnaik - Barclays Capital, Inc.
Okay. Thanks a lot, guys.
Scott G. Stephenson - President, Chief Executive Officer & Director
Thanks.
Eva F. Huston - Senior Vice President and Treasurer
Thank you.
Operator
Your next question comes from the line of Jeff Meuler with Baird. Your line is open.
Jeff P. Meuler - Robert W. Baird & Co., Inc. (Broker)
When you said that 2016 softness in WoodMac may have been pulled forward, I know you're not breaking out subs versus non-subs. But does that include some weakness being pulled forward on WoodMac bookings trends for the subscription business?
Scott G. Stephenson - President, Chief Executive Officer & Director
No.
Jeff P. Meuler - Robert W. Baird & Co., Inc. (Broker)
Okay. And then on the healthcare decision to, I guess, explore, at least, the strategic alternatives announced last night, the disclosure or the timing of the disclosure, should we view that as being driven by press reports or by reaching some step in the process relatively recently?
And if it's the latter, can you just comment on, and I know you've talked about the timing over the last year, but can you talk about the timing of reaching that conclusion just given how trends are right now as you think about maximizing value for your shareholders?
Scott G. Stephenson - President, Chief Executive Officer & Director
Yeah. We've been in a long and deliberate discussion with our board.
And the process has accounted for a lot of different things, a lot of different considerations and driven by our own considerations, definitely not by the press. Not at all.
It's just in our own timing, we decided that we were comfortable making the statement that we made last night. But it was entirely our own thinking and developed, again, over a very – we've been talking with our board about this for some time.
Jeff P. Meuler - Robert W. Baird & Co., Inc. (Broker)
Okay. Thanks, Scott.
Scott G. Stephenson - President, Chief Executive Officer & Director
You bet. Thanks, Jeff.
Operator
Your next question comes from the line of Toni Kaplan with Morgan Stanley. Your line is open.
Toni M. Kaplan - Morgan Stanley & Co. LLC
Hi. Thanks.
Good morning.
Scott G. Stephenson - President, Chief Executive Officer & Director
Good morning.
Toni M. Kaplan - Morgan Stanley & Co. LLC
Within WoodMac, could you just give us a better sense of what services clients are pulling back on, and also, just what types of customers are tightening their spending the most? Is it the NOCs or is it more broad-based?
Scott G. Stephenson - President, Chief Executive Officer & Director
Yeah. I'll start, and, Mark, you might want to jump in as well.
So we have commented on the difference between the hardcore data analytic business and then the services, and it's definitely being felt on the services side. The hardcore data analytic, which is subscription-based, has performed very nicely in this environment.
With respect to within the customer base, there is some segments that are doing very nicely, actually. But it is among the companies in the industry, the oil companies themselves, and I would point particularly to NOCs and also the focused E&P players.
That's where it's been felt most strongly.
Mark V. Anquillare - Chief Financial Officer & Executive Vice President
I will just highlight, I think, something Scott said earlier. I think the silver lining, the good news in there, besides the subscription rates being extremely high, the renewals of those.
We've seen a lot more usage. This is about what the analytics and the actual people looking at the content of about 25%.
So you can clearly see the value of the solutions they provide despite what is an interesting time in the market.
Scott G. Stephenson - President, Chief Executive Officer & Director
And, sorry. I just wanted to correct something I said.
I didn't mean to say the NOCs. I meant to say the integrated global oil companies.
National oil companies have actually been pretty strong in the current environment.
Toni M. Kaplan - Morgan Stanley & Co. LLC
Okay. Great.
And just on healthcare, just looking at fourth quarter, like, should we expect sort of a similar expectation to what the growth in this quarter, is there any reason to think that it will be better than this quarter was? Thanks.
Scott G. Stephenson - President, Chief Executive Officer & Director
I think we've just tried to highlight that we did expect a deceleration in the second half of the year from a growth perspective. We are continuing to track internally.
We think it's a very good business, very big market, and we have confidence in that team.
Operator
Your next question comes from the line of Andrew Steinerman with JPMorgan. Your line is open.
Andrew Charles Steinerman - JPMorgan Securities LLC
(32:09 – 32:13) usual about EBITDA margins in the fourth quarter, including healthcare. The way I just want to make sure I understand the third quarter number for EBITDA margin, the 50.7% includes warrants.
So if I exclude the warrants of $15.6 million, gains in the third quarter was $47.8 million, right? And how should I be thinking about the fourth?
Mark V. Anquillare - Chief Financial Officer & Executive Vice President
Your math is good. I got $47.9 million, but I'm sure we're probably just rounding.
I would tell you that we continue to see a strength in the margins. I think you saw that in third quarter.
There's operating leverage throughout. We do have beginning of some of the hiring that we had identified earlier on with that realignment inside of risk assessment.
So some of those costs will come back into fourth quarter. I want to mention that.
And I think the natural ebbs and flows of expenses as it relates to fourth quarter should feel generally like the third.
Andrew Charles Steinerman - JPMorgan Securities LLC
Okay. Thank you.
Scott G. Stephenson - President, Chief Executive Officer & Director
Thanks, Andrew.
Operator
Your next question comes from the line of Bill Warmington with Wells Fargo. Your line is open.
William A. Warmington - Wells Fargo Securities LLC
Good morning, everyone.
Scott G. Stephenson - President, Chief Executive Officer & Director
Hi, Bill.
Mark V. Anquillare - Chief Financial Officer & Executive Vice President
Good morning.
William A. Warmington - Wells Fargo Securities LLC
So first question on healthcare, just to ask. If you go through this process and you do decide you want to sell the asset, what are your thoughts in terms of the use of the proceeds?
Scott G. Stephenson - President, Chief Executive Officer & Director
Well, you can expect from us the same approach that we've always taken, which is when we put out a leverage target, we're going to meet that leverage target. And then we continue to lean into the M&A agenda.
That's our first best use for available funds. And we've always felt very good about the share buyback program, and you will continue to see that featured in our capital deployment as well.
William A. Warmington - Wells Fargo Securities LLC
Okay. And now the second question to ask about, financial services and Argus.
Basically, if you could comment on the pipeline that you're seeing in demand for media effectiveness and then as you – I understand it's a lumpy business because of the project-related apportion of some of the revenue. So I'm trying to understand how we should think about the annual revenue, the growth rate for revenue on an annual basis.
Scott G. Stephenson - President, Chief Executive Officer & Director
Yeah. Yeah.
So the overall profile for Argus, when you account for all the different ways that this business can grow, it can grow internationally. It can grow by new customer acquisition for the existing solution.
It can grow by more applied analytics for individual customers. It can grow by the expansion of the media effectiveness business.
All of those things are at work. All of those things are powering the performance of Argus.
I expect Argus in 2016 and beyond to be the same Argus that you've known and that we've known. It is a very innovative team that is working on top of a very proprietary set of intellectual property assets and doing a great job with them.
And so the outlook is completely unchanged. And there is this somewhat lumpier quality that will be there from time-to-time when the very large, particularly, I would say, new media players get interested, their entry tends to have a pretty substantial effect and then it sort of normalizes as you go forward.
So there probably will be lumps going forward, but the overall profile of the business is going to look very much like it has.
William A. Warmington - Wells Fargo Securities LLC
Okay. Thank you very much.
Scott G. Stephenson - President, Chief Executive Officer & Director
Thanks, Bill.
Operator
Your next question comes from the line of Sara Gubins with Bank of America Merrill Lynch. Your line is open.
Sara Rebecca Gubins - BofA Merrill Lynch
First, a question on Decision Analytics margin. When we adjust for the benefit of the healthcare pass-through revenue change and the investment gain, it looks like the underlying margins in that segment were down year-over-year.
Could you talk about what might be driving that and whether or not we should continue throughout next quarter?
Mark V. Anquillare - Chief Financial Officer & Executive Vice President
Yeah. Let me take that.
There was some reduction in the margins for the third quarter relative to last year when you do do that math. I would highlight that overall, margins are extremely strong.
I think the Decision Analytics margin is based upon kind of the overall way the business is set up should, into the future, continue to grow. But obviously, a consistency to fourth quarter as you saw third quarter, that's probably a good parallel.
Sara Rebecca Gubins - BofA Merrill Lynch
And is there anything that changed versus the first half of the year that would be driving that?
Mark V. Anquillare - Chief Financial Officer & Executive Vice President
Well, I mean, there's a few things that we did highlight up front. If you were to think about the Touchstone investments, some of the work that we're doing to kind of integrate platforms and bring Touchstone together, that is one item.
The other thing is some OpEx and CapEx as we bring on new initiatives like the Telematics data exchange. There's cost in there that we need to incur now and revenue is following.
So these are long-term investments that will prove fruitful for both our top line and bottom line in the future. But there's some cost to be undertaken.
Sara Rebecca Gubins - BofA Merrill Lynch
Thank you.
Scott G. Stephenson - President, Chief Executive Officer & Director
You're welcome.
Operator
Your next question comes from the line of Arash Soleimani with KBW. Your line is open.
Arash Soleimani - Keefe, Bruyette & Woods, Inc.
Thanks, and good morning.
Scott G. Stephenson - President, Chief Executive Officer & Director
Morning.
Arash Soleimani - Keefe, Bruyette & Woods, Inc.
Couple of questions here. You mentioned in the press release on healthcare that it'll give you the opportunity to pursue some of your global ambitions.
I just wanted to know if you could talk a bit about that. Is that mostly on the insurance side and just see if there's any more color you can provide there?
Scott G. Stephenson - President, Chief Executive Officer & Director
Yeah. So you're going to see the deployment of capital having a couple of characteristics going forward.
One is it will be spread across everything we do at Verisk. So it's not going to be concentrated in any one part of the business.
And the other thing that you'll see is that we are going to try to deploy the capital disproportionately in non-U.S. markets in order to support the expansion of everything that we do globally.
Arash Soleimani - Keefe, Bruyette & Woods, Inc.
Thanks.
Mark V. Anquillare - Chief Financial Officer & Executive Vice President
And this is Mark. So just trying to, and sorry to do this, but even to Sara's earlier question, some of the margins that you were referring to on last question, we have put some resources into international business development and, also, to localize our solution, so that we can attract and attack various international markets.
So let me add that to be as the third bullet to some of the cost we incurred. Sorry for that, Scott.
Scott G. Stephenson - President, Chief Executive Officer & Director
Yeah. No.
Thanks.
Arash Soleimani - Keefe, Bruyette & Woods, Inc.
Thanks. And my second question is just back on to the tax rate.
It was 32% this quarter. I think you guided to 35% for the fourth quarter.
So it seems like it's starting to trend below the 36% we were expecting on the last call. I'm just wondering, where could that end up?
Is there is still opportunity to improve that in 2016?
Mark V. Anquillare - Chief Financial Officer & Executive Vice President
So this is Mark. We do believe that the rate, the effective rate, in the UK should come down by potentially a point come 2016.
So that would add to the, from a balance or weighting perspective, that should add to some good news in 2016. And I think we'll try to provide you a little bit guidance as we get closer to 2016 with what our expectations are.
So a little bit down, but still we're pretty much a U.S. taxpayer with a lot of footprint in New York, New Jersey, California and Massachusetts.
So the U.S. operations kind of come with high state tax rates.
Arash Soleimani - Keefe, Bruyette & Woods, Inc.
Great. Thanks for that.
Scott G. Stephenson - President, Chief Executive Officer & Director
You bet.
Operator
Your next question comes from the line of Jeff Silber with BMO Capital Markets. Your line is open.
Jeffrey Marc Silber - BMO Capital Markets (United States)
Thank you very much. In the 10-K, when you're talking about the lower growth in healthcare, you say that it was due to changes in our customer contract language in the healthcare revenue category.
Can you elaborate a bit on this? Is that something that just happened in the third quarter, and is that something that's going to impact growth going forward?
Thanks.
Mark V. Anquillare - Chief Financial Officer & Executive Vice President
So I think what we're referring to there is with a customer beginning, like, first quarter of this year, we went from basically a gross accounting for certain services to net accounting. So we did not want to, for the most part, continue to provide the service.
We went to a third party. So we transitioned because of the contract, because of the nature of the contract.
The bottom line, let me say, did not change. The EBITDA did not change.
I think this is just the notion of how we account for it, gross versus net, from a revenue perspective. Same contracts, same revenues, same pricing, it was just simply the nature of the relationship caused a change in the accounting methodology.
Jeffrey Marc Silber - BMO Capital Markets (United States)
And I'm sorry. Roughly, what was the impact this quarter?
Mark V. Anquillare - Chief Financial Officer & Executive Vice President
Hang on. Give me a second here.
Maybe David can follow-up with you, but I do believe that it was probably about $10 million to $11 million, but we'll get back to you.
Jeffrey Marc Silber - BMO Capital Markets (United States)
Okay, great. I'll follow-up on that.
And then just one question on WoodMac. Sorry.
You had mentioned that you're looking for I think it was $210 million in revenue contribution on a dollar GAAP basis. It was lower than it was before.
Can you just remind us what it was before?
Mark V. Anquillare - Chief Financial Officer & Executive Vice President
We were at $225 million.
Jeffrey Marc Silber - BMO Capital Markets (United States)
Okay, great. Thanks so much.
Operator
You're next question comes from the line of Andre Benjamin with Goldman Sachs. Your line is open.
Andre Benjamin - Goldman Sachs & Co.
Thanks. I first wanted to ask about the expectations for the Telematic exchange even though I know it's not supposed to launch until summer 2016.
I was wondering what is the go-to-market and how you actually plan to charge insurance companies for this service. And then given it's really not until 2016, how much still needs to happen?
Is it still primarily development work that needs to be done or is it just signing people up, et cetera?
Scott G. Stephenson - President, Chief Executive Officer & Director
Let me start with the answer of kind of what we're doing and where we're at and then Mark can talk about the revenue model. So we are in the process of actually dimensioning the data sets and the UX so that our insurance customers can make use of the data that we'll be compiling inside of the data set.
So there is root and branch work which is going on right now, and Mark mentioned that before and I'll just mention more. Here's the general theme where Verisk is concerned.
I think we're doing a very good job of running the business tightly, which I think you can see in the margins. And we're doing that at a moment where, actually, the software intensity of a number of our businesses is actually going up.
And so it's kind of a fine balancing act, but I actually feel very strongly positive about the way our operation has been able to actually raise efficiency while, at the same time, actually deepening investment in some of these ways. So there is root and branch development work of all of the processes associated with extracting, transforming and loading the data then the management of the data inside of the exchange and then the return of the analytic to the user community.
That is going on. That's part of between now and December 2016.
The other thing I would comment on is, as you would imagine, when the announcement was made of our partnership with General Motors, it created quite a stir among all the OEMs. And so there is a very brisk set of conversations going on right now with the other OEMs.
The focus at the moment is the U.S. But our hope is that with time, having built out this capability in the United States, we will be able to work with the same OEMs, particularly those that are not headquartered in the United States, and bring the same method into other markets.
So I think you can think of it as two streams of development going on at the moment for the domestic market, the infrastructure and the participation of the other OEMs. And then subsequent to that, there will be a pushing out globally with respect to all of that.
So that's kind of what we're doing with the business. Mark, do you want to talk a little bit about the revenue model?
Mark V. Anquillare - Chief Financial Officer & Executive Vice President
Sure. So what we've put in place is really this wonderful consortium model that will ramp up for those people who choose or opt in.
What we do expect to do is monetize this by providing this very useful N+1 type data to our insurer customers in, really, two forms. We'll play the part of if you need the data like we would serve that up to them.
But what we also do have the opportunity to do is provide a lot of analytics around that. So as you know, we have some very interesting Telematics scoring models, whether it's about the behavior of the driver or about the location in which that drive happens from point A to point B.
All of that factors into the underwriting and pricing of the risk, meaning the pricing of the policy. So we have an opportunity to provide those analytics along with the data to our customers.
And I think we have a very unique position to aggregate a lot of industry data in a very unique way. So I feel pretty excited about the opportunity here and the relationship to bring basically all of these OEMs together with the insurance industry and be the hub of that consortium.
Andre Benjamin - Goldman Sachs & Co.
As a follow-up, I know you've talked in the past about the efforts to build up the imagery capabilities and you've listed out a number of areas that you hope to talk about at your Analyst Day. But just wondering, any detail about how you're thinking about that today, given it has been something you talked about in the past would be helpful.
And as we think about cost, I was wondering what the impact these investments in that effort are having on costs. And should we see a step up or a step down from current levels over time as you roll those out?
Scott G. Stephenson - President, Chief Executive Officer & Director
Yeah. So our interest level remains very high.
And our goal is to have a number of use cases. Some of the most important use cases in the nearer term relates to the insurance industry.
And we've already actually seen our ability to create material revenue streams in what we're doing. But to my way of thinking, we're still kind of right at the beginning, basically.
Our methods are very good. Our methods will be expanding because, as you know, sort of the heart of the paradigm today is to make use of an image coming from the belly of a plane 2,000 feet or 3,000 feet above the ground.
When we say multitier, multispectral imaging, we're talking about using an image from a satellite, which is 30 miles to 50 miles up a plane, an unmanned aerial vehicle. And something else which is going to be occurring going forward will be the use of handheld devices to also provide imagery.
We're not very far away from the day when all of us may use our handheld device to image the interior of the places where we live. And that information also can potentially be used in the insurance process.
And then there are a lot of other use cases: the solar industry; municipalities; and on and on. So I think we're just at the beginning of this march.
We have made efforts, and we continue to make efforts to step up the availability of relatively precise aerial imagery today because that relates to today's use case. I think what you're going to find from us is that with time, the relative importance of the other forms of imagery will go up, and so the mix will probably modify as we go forward.
With respect to the cost of sourcing aerial imagery today, we are sourcing more images and it will be there in the cost structure. But I don't think it's going to be a huge factor, partly because we found new and different ways to sort of contract for the sourcing of the images.
So it'll all remain relatively dynamic, but the category remains very, very interesting to us.
Andre Benjamin - Goldman Sachs & Co.
Thank you.
Scott G. Stephenson - President, Chief Executive Officer & Director
You're welcome.
Operator
Your next question comes from the line of Anj Singh with Credit Suisse. Your line is open.
Anjaneya K. Singh - Credit Suisse Securities (USA) LLC (Broker)
I was wondering if you could discuss the dynamics behind why there was such a latent impact on the services businesses for WoodMac in light of where the oil prices have been and some of your competitors dealing with this pressure for a few quarters now.
Scott G. Stephenson - President, Chief Executive Officer & Director
Yeah. You know, I'm not really going to comment on the competitors except to say that we observe in what we're doing the relationship that we have with our customers.
And what we see is that the content that we provide is a must-have, and the depth and quality of the customer relationships remains unchanged. The renewal rates are enormously high.
They're actually higher than found in several other parts of Verisk. And so we're very, very pleased with where the business is in terms of making a difference for customers and the content being meaningful.
And as you know, the revenues at WoodMac are weighted heavily towards the recurring subscription-based data analytic, and that continues to do very well. In this moment, I would think particularly our industry customers, our oil and gas industry customers, are attempting to respond to an unusual set of circumstances.
They've decided, in this moment as they've right-sized their own teams, as they have modified their capital expenditures, they've also taken hard look at that which is discretionary. And the kind of services that we provide, which is the minority of what we do, those have been under pressure at this time.
But I think the true measure of the business is the underlying recurrent subscription business and that's held up, I think, very nicely actually.
Anjaneya K. Singh - Credit Suisse Securities (USA) LLC (Broker)
Okay. Got it.
That's helpful. And one other one on WoodMac.
You recently announced an e-commerce service for WoodMac.
Scott G. Stephenson - President, Chief Executive Officer & Director
Right.
Anjaneya K. Singh - Credit Suisse Securities (USA) LLC (Broker)
Curious to see how much of this decision here was something that you're being proactive on, or is it more about pull-type of function from clients interested in one-off or à la carte types of products and services. Thanks.
Scott G. Stephenson - President, Chief Executive Officer & Director
Yeah. So glad you asked.
And actually you're going to see more of that from us. So we actually put out there an announcement about the first one, but there will be many, many more.
There are a number of ways to put the content out there, and it is definitely us pushing not other's pulling. In other words, we've said we can slice and dice our content, which is the thing that we look – that's one of the plays we've run across everything that we do.
Particularly relevant here is not existing customers saying, I want to get it differently or I want different discrete packets of what you've got. You've already got a very highly featured menu that you can already shop when you're an existing customer.
This is really about trying to move the content towards entirely new user communities. Mark, you wanted to say something else?
Mark V. Anquillare - Chief Financial Officer & Executive Vice President
I think we highlighted this even at the last quarter call. If you actually look at the number of customers that WoodMac has in that 800 to 900 range, that's a very small number relative to the number of people who could potentially benefit from the content.
So moving downstream, not in an upstream/downstream perspective, but kind of to the smaller customers has been a constant push that we're on. It comes in the form of some new sales reps to attack that, but as well, the Internet or e-commerce approach to providing a smaller package of solutions that people can access through the Web is another approach to doing that.
So we remain optimistic about ways we can get downstream to maybe provide opportunities to a bigger set of customers.
Scott G. Stephenson - President, Chief Executive Officer & Director
As much as WoodMac is the leader in its category, this is an undersold business.
Anjaneya K. Singh - Credit Suisse Securities (USA) LLC (Broker)
Appreciate the thoughts. Thank you.
Operator
Your next question comes from the line of Paul Ginocchio with Deutsche Bank. Your line is open.
Paul L. Ginocchio - Deutsche Bank Securities, Inc.
Thanks for taking my question. Scott, there's a couple concerns have come up with the results around healthcare in the call today on energy and the lack of guidance has created probably even more uncertainty around both of those.
Is there any way here at the end of the call you just want to try to clarify or help us get a little color on trends going forward? Can you give us 3Q bookings growth for WoodMac?
And how does the fourth quarter in healthcare look? Is it more like the third quarter or more like the first half?
Scott G. Stephenson - President, Chief Executive Officer & Director
We've never provided bookings commentary on any of our businesses. Mark already put out there our expectation for WoodMac for the full year of 2015.
So I do think we spoke to that. And in light of our comments about our strategic review, we've sort of said what we're going to say about healthcare.
Paul L. Ginocchio - Deutsche Bank Securities, Inc.
Okay.
Operator
And your next question comes from the line of Jeff Meuler with Baird. Your line is open.
I'll now turn the call back over to Mr. Stephenson for closing remarks.
Scott G. Stephenson - President, Chief Executive Officer & Director
Okay. Well, thank you very much, everybody, for joining us.
We look forward to catching up with you at Investor Day in December. Hope all of you will be there with us.
We're going to feature a lot of discussion and commentary about Wood Mackenzie particularly, so hopefully you'll find that very helpful and interesting. And otherwise, thanks and enjoy your day.
Operator
Ladies and gentlemen, this concludes today's conference call. You may now disconnect.