Feb 22, 2017
Executives
David E. Cohen - Verisk Analytics, Inc.
Scott G. Stephenson - Verisk Analytics, Inc.
Mark V. Anquillare - Verisk Analytics, Inc.
Eva F. Huston - Verisk Analytics, Inc.
Analysts
Tim J. McHugh - William Blair & Co.
LLC Manav Patnaik - Barclays Capital, Inc. Andrew Charles Steinerman - JPMorgan Securities LLC Jeff P.
Meuler - Robert W. Baird & Co., Inc.
Andrew Jeffrey - SunTrust Robinson Humphrey, Inc. Kayvon Rahbar - Macquarie Group Patrick T.
Halfmann - Morgan Stanley & Co. LLC Arash Soleimani - Keefe, Bruyette & Woods, Inc.
Joseph Foresi - Cantor Fitzgerald Securities Jeffrey Marc Silber - BMO Capital Markets (United States) Andre Benjamin - Goldman Sachs & Co. David J.
Chu - Bank of America Merrill Lynch Gary Bisbee - RBC Capital Markets LLC
Operator
Good day, everyone, and welcome to the Verisk Analytics fourth quarter 2016 earnings results conference call. This call is being recoded.
At this time, for opening remarks and introductions, I would like to turn the call over to Verisk's Director of Investor Relations, Mr. David Cohen.
Mr. Cohen, please go ahead.
David E. Cohen - Verisk Analytics, Inc.
Thank you, Scott, and good day to everyone. We appreciate your joining us today for a discussion of our fourth quarter 2016 financial results.
With me on the call this morning are Scott Stephenson, Chairman, President and Chief Executive Officer; Mark Anquillare, Chief Operating Officer; and Eva Huston, Chief Financial Officer. Following comments by Scott, Mark, and Eva highlighting some key points about our strategic priorities and financial performance, we will open up the call for your questions.
Unless stated otherwise, all results we discuss today will reflect continuing operations. All discussions of EBITDA reflect adjusted EBITDA, for which you can find a reconciliation in our press release.
The earnings release referenced on this call as well as the associated 10-K can be found in the Investors section of our website, verisk.com. The earnings release has also been attached to an 8-K that we have furnished to the SEC.
A replay of this call will be available for 30 days on our website and by dial-in. Finally, as set forth in more detail in today's earnings release, I'll remind everyone that today's call may include forward-looking statements about Verisk's future performance.
Actual performance could differ materially from what is suggested by our comments today. Information about the factors that could affect future performance is contained in our recent SEC filings.
Now, I will turn the call over to Scott Stephenson.
Scott G. Stephenson - Verisk Analytics, Inc.
Thank you, David. Good morning, everyone.
In the fourth quarter, we again delivered solid revenue growth, leading margins and strong underlying cash generation. The resilience of our financial performance while facing currency and energy and end market headwinds, reflects the distinctiveness of our businesses, the outstanding dedication of our people, and the value we deliver to our customers.
In addition to a successful 2016, our initiatives during the year position us well to execute on our plans for 2017. Revenue from continuing operations grew 6% in the fourth quarter and 13% for the year.
Organic constant currency revenue grew about 6% in the quarter and for the full year. With almost 8% growth in the quarter from our combined insurance and financial services businesses, the long-term underlying trends remain encouraging.
WoodMac finished the year slightly better than flat, a remarkable achievement, given the end market headwinds. Profitability remained strong with total EBITDA margins in the quarter and for the full year of around 50%.
EBITDA growth was around 7% in the quarter and excluding the prior year warrant sale gain was about 12% for the full year. Diluted adjusted EPS grew about 8% in the quarter and for the year and about 11% excluding the prior year warrant gain.
Year-to-date, free cash flow was up 16%, excluding the one-time tax on the gain on the healthcare business sale. We were pleased to continue returning capital to our shareholders through our longstanding share repurchase program.
We bought $144 million of stock in the quarter and after an additional $500 million authorization. We had over $600 million available as of December 31, 2016.
With our leverage below our 2.5 times reference level, we have plenty of capacity to make strategically relevant acquisitions, as well as additional repurchases. We made a number of tuck-in acquisitions in 2016 and early this year, which collectively have brought us new data sets, adjacent solutions, distinctive analytics, additional markets to serve, and outstanding data analytics talent.
In many cases, the acquisitions also accelerate our strategies, at a lower cost relative to a build approach. We benefit from our flexibility to decide whether to innovate organically or via acquisitions.
We remain active in evaluating possible transactions in pursuit of our international expansion and vertical enhancement efforts. The foundations of our businesses remain the Verisk distinctives of one, unique data assets; two, deep domain expertise; three, first to market innovations; and four, deep integration into our customer workflows.
Our success is due to the outstanding efforts of our people, who enhanced the distinctiveness of our business, as we focus on serving our customers with innovative data analytics solutions. We feel very good about our ability to serve our customers and drive top-line growth for the long-term as a result.
We are well-positioned for 2017 with contributions expected from existing and newly acquired businesses. We continue to invest in innovation, and I'm excited about the multi-year opportunities for solutions under development this year.
So with that, let me turn the call over to Mark for some additional comments.
Mark V. Anquillare - Verisk Analytics, Inc.
Thank you, Scott. Across our businesses which serve the property and casualty insurance industry, we had several key industry themes, including vertical big data, industry automation, and digital engagement.
As we serve our customers with these themes in mind, we made a number of tuck-in acquisitions to complement our organic efforts. We made two acquisitions to enhance our strong position in extreme event modeling.
Analyze Re extends AIR's capabilities farther downstream by providing real-time solutions for reinsurance treaty pricing, enterprise portfolio roll-up, and portfolio optimization. Last month, we acquired Arium, which provides modeling solutions and analytics for the casualty market.
Our vision is to leverage Arium's capabilities to allow us to do for casualty analytics, what we've done for property analytics. Arium's solutions provide analytics for liability exposures, including visual and quantitative insights into accumulations in areas of risk concentration.
These acquisitions got us to market faster and at a lower cost than if we had built the solutions ourselves. We also acquired MarketStance, a leading provider of data analytics solutions that enable insurers to identify high potential market segments of interest.
This gives us a broader set of solutions with which to serve our customers' marketing departments. Another of our recent acquisitions was The GeoInformation Group, a leader in geographic data solutions based in the UK, where we are expanding.
The GeoInformation Group offers large-scale mapping services and geospatial data and analytics solutions to a wide array of companies and public sector organizations. This acquisition complements our risk management and predictive analytic capabilities internationally and expands Verisk's footprint in the UK across multiple verticals including insurance, energy, and real estate.
Finally, just last week, we acquired Healix Risk Rating, a leader in automated risk assessment at the point-of-sale for the travel insurance industry. This acquisition further expands our Risk Assessment offerings for the global insurance industry, providing solutions that are embedded in our customer workflows and can help our insurers underwrite travel insurance with greater speed, accuracy and efficiency.
These tuck-in acquisitions are close to our core insurance business and support our deep analytic expertise, unique data and global focus. With that, let me turn the call over to Eva to cover the financial results.
Eva F. Huston - Verisk Analytics, Inc.
Thank you, Mark. In the fourth quarter and for the full year, we again grew both revenue and EBITDA, while also investing in solutions with meaningful long-term potential revenue streams.
Revenue in the fourth quarter grew 6% and 6.2% organically in constant currency. For the full year, revenue grew 13.3% and 5.8% organically in constant currency.
Our combined insurance and financial services businesses grew 7.9% in the quarter and 6.9% for the full year. As a reminder, organic constant currency growth excludes the contribution from recent acquisitions and reflects current period exchange rates applied to prior period revenue.
EBITDA grew 7% to $258 million in the quarter and 11.9% to $1 billion for the full year. The full-year growth excludes the 2015 warrant sale gain.
EBITDA margins were 50.9% in the quarter and 50.4% for the full year. Within the Decision Analytics segment, revenue grew 6.5% and 7.3% organically in constant currency.
Again, this quarter, financial services was the fastest growing vertical, while insurance-focused solutions were the largest contributor of dollars to growth. For the full year, Decision Analytics revenue grew 18.5% and 6.3% organically in constant currency.
Decision Analytics insurance revenue grew 7.5% in the fourth quarter. Organic growth was 7.3% in the quarter.
Performance in the quarter was led by strong growth in underwriting solutions, with good contributions from claims analytics and repair cost estimating solutions. Catastrophe modeling solutions also contributed to growth.
For the full year, revenue grew 8.1% on a reported and organic basis. The full-year Decision Analytics insurance growth is consistent with what we delivered in 2015.
Customer retention remains very high, and we are confident in our ability to continue to deliver growth. Energy and specialized markets category revenue declined 0.3% in the quarter and increased 43.4% for the full year.
On a constant currency basis, WoodMac was up slightly for the full year. We were expecting the results to be about flat, and as a result we were pleased with the performance.
Consistent with our longstanding approach, WoodMac became a part of organic revenues starting in the third quarter. Revenue for energy and specialized markets excluding the recent acquisitions declined 5.5% in the quarter and for the full year, primarily as a result of the continuing end market and currency headwinds affecting the energy business.
Financial services category revenue increased 27.3% in the quarter and 10.1% for the full year. Growth was driven by analytical and media effectiveness solutions.
Risk Assessment revenue grew 5.1% and 4.4% organically in the quarter, continuing to demonstrate the value to our longstanding insurance customers, contributions of newer solutions, and the inclusion of recent acquisitions. Risk Assessment growth was 5.2% and 5% organically for the full year.
Industry-standard insurance programs revenue grew 5.9% in the quarter and 5.4% organically, reflecting our 2016 invoices and continued contribution from newer solutions such as Predictive Models and Electronic Rating Content. Growth was 5.6% for the full year and 5.3% organically.
Our property-specific rating and underwriting information revenue increased 2.6% in the quarter and 1.4% organically. Growth was led by underwriting solutions revenue.
For the full year, growth was 4% and 3.7% organically. EBITDA increased 7% in the quarter to $258 million, resulting in EBITDA margins of 50.9%.
For the full year, EBITDA increased 9.9%, resulting in margins of 50.4% and, adjusted for the 2015 warrant gain, grew 11.9%. Reported interest expense was $28 million in the quarter and $120 million for the full year.
At December 31, 2016, total debt was about $2.4 billion, including about $100 million of revolver borrowings. Our pro forma leverage at the end of the fourth quarter was about 2.2 times.
Since the end of the fourth quarter, we've repaid an additional $70 million. Our cash and cash equivalents were about $135 million at the end of 2016.
Our reported effective tax rate was 32.9% in the quarter. For the full year 2016, the effective tax rate was 30.9%.
Adjusted net income increased 5.5% to $135 million in the quarter and 10.1% to $532 million for the full year. Adjusted EPS on a fully diluted basis was $0.80 in the quarter, an increase of 8.1%.
For the full year, adjusted EPS grew 8.4% to $3.11. Diluted adjusted EPS from continuing operations for the full year increased because of organic growth in the business, acquisitions, and lower interest expense.
The increases were partially offset by higher fixed asset depreciation expense, higher taxes, and a higher share count. Excluding the 2015 warrant gain, adjusted EPS grew 10.7% for the full year.
The average diluted share count was 170.2 million shares in the quarter, and on December 31, 2016 our diluted share count was 169.5 million shares. We repurchased 1.8 million shares in the quarter for a total return of capital to shareholders of $144 million.
At December 31, 2016, we had $636 million remaining under our share repurchase authorization. As Scott mentioned, we added an additional $500 million in December.
Our repurchase program has been successful to date, generating annualized IRRs above our cost of capital. Free cash flow increased 20.8% to $498 million for the 12-month period ended December 31, 2016, excluding the $100 million tax on the gain of the sale of the healthcare business and the $19 million ESOP payment.
Free cash flow excluding the tax and ESOP payments was 49.5% of EBITDA. These numbers are all for continuing operations.
Free cash flow remains an important metric for measurement of driving enterprise, and therefore shareholder value. Capital expenditures were $146 million in the 12 months ended December 31, 2016, an increase of $7 million over the same period in 2015.
Capital expenditures were 7.3% of revenue for the 12 months ended December 31, 2016. As you think about your models for 2017, currency will continue to be a headwind, with the strongest effect in the first quarter and continuing through the year, given the current sterling-U.S.
dollar rates. On a reported basis, this will affect the normal quarterly progression we typically see.
In 2016, the exchange rate averaged $1.44 before the June Brexit vote and $1.36 for the full year. At December 31, 2016, the rate was $1.23.
At $1.23, 2016 revenue would have been about $25 million lower than reported, with the greatest impact in first quarter. In addition to the revenue impact, currency will also have a downward impact on margins.
Depending upon your prior FX assumptions, please keep the lower currency in mind as you review your 2017 and forward estimates. In addition, you will recall that in first quarter of 2016, we had several million dollars of one-time true-up revenue in Decision Analytics insurance, which we discussed with you last year.
And finally, please keep in mind that the tuck-in acquisitions are not yet at scale, and therefore are lower margin than the corporate average but proportionate to their size. The acquisitions we are doing are close to the core with well defined path to top line growth and margin expansion.
The net of many of these factors is that we expect to see much more of a progression in both revenue and EBITDA, as we move through the year. In addition, we expect CapEx of about $160 million to $165 million.
This reflects the opportunities we have to invest in some newer areas, in many cases related to people which fall both under operating and capital expenditures. Fixed asset depreciation and amortization of about $125 million, and amortization of intangibles of about $90 million.
Based on our current debt balances and interest rates we expect interest expense to be around $115 million, and we estimate the tax rate to be in the range of 32% to 33%. In the adjusted net income calculation, we will continue to use 26% for the tax effect on intangible amortization.
And finally, we expect a diluted weighted average share count of 171.2 million shares. We're pleased with our 2017 plan while being mindful of the currency headwinds.
We are excited about the opportunities to invest, looking to drive long-term profitable growth. We remain confident that we have the financial strength and capital structure to support investment for the long-term.
We continue to appreciate all the support and interest in Verisk. Given the large number of analysts we have covering us, we ask that you limit your questions to one and one follow-up.
And with that, I'll ask the operator to open up the line for questions.
Operator
Your first question comes from the line of Tim McHugh with William Blair. Your line is open.
Tim J. McHugh - William Blair & Co. LLC
Thank you. First, just I wanted to ask for a little bit more color on the insurance vertical.
I guess, the growth while you had talked last quarter that you didn't expect that part of the business to accelerate this year, I guess, it still seems to have been probably a little slower than you used to see. So can you talk about the puts and takes that you're seeing just, I guess, within that vertical?
Mark V. Anquillare - Verisk Analytics, Inc.
Hi, Tim. This is Mark.
Just I want to give you the color you're asking for. First of all, I think, we continue to feel very good about the insurance vertical overall, the combination of greater customer engagement in form of better interactions, higher level interactions, big topics being discussed, as well as a lot of new innovations we're excited by.
Inside some of the macro, you do have some headwinds with regard to the world of premium growth industry consolidation, but I think those are to a lesser extent kind of more distinct and I think the team performed well, inside of a couple of, what I refer to as some industry slowdown, but we maintain a very positive outlook for the future.
Tim J. McHugh - William Blair & Co. LLC
I guess just a follow-up in the context of that, I guess, tougher industry environment I assume that's going to continue into 2017. Would you expect the growth rate to stay at a little lower level in that environment?
And is that the kind of way you're thinking about it now or how are you thinking about it?
Mark V. Anquillare - Verisk Analytics, Inc.
So I would say to you that if you are focused on kind of the industry premium growth, a lot of our contracts now have kind of moved beyond and away from that. So there is clearly a focus on procurement and cost containment inside of our customers, so that's a little bit of what I was referring to.
But in what I see is a lot of industry automation that's happening, people are relooking at processes, people are relooking at how their systems operate, and that has given us some big opportunities and some nice pipeline. The other thing I'll highlight as we continue to be talking about here, kind of U.S.
premium growth, we continue to have aspirations and some opportunities that extend beyond United States, and the international global expansion remains a key priority for us as we look forward. So, I think we remain positive across the board there.
I hope that's responsive.
Tim J. McHugh - William Blair & Co. LLC
Yeah. And just to continue on that, one follow-up.
The cat modeling area seems to have been the slowest growing part this quarter for Decision Analytics, as it was last quarter. I recognize the issues in the reinsurance sector, but are you comfortable that you are still picking up as much market share as you were in the past?
You seem to have grown faster relative to your main competitor there even in the past, I guess versus lately.
Mark V. Anquillare - Verisk Analytics, Inc.
So I think we are continuing to make a lot of progress there. You've probably hit on couple of the topics, although a smaller piece, the world of insurance-linked transactions is a little lighter so that probably has brought some of that revenue down a little bit.
More importantly though, we from the standpoint of working with insurers and reinsurers we have been growing like we have in the past. I don't think there's any slowdown there.
When we talk about industry trends though, there is a headwind relative to when – if there's industry consolidation among insurers. So you see some of that inside the growth as well.
Tim J. McHugh - William Blair & Co. LLC
Okay, thank you.
Operator
Your next question comes from the line of Manav Patnaik with Barclays. Your line is open.
Manav Patnaik - Barclays Capital, Inc.
Thank you. Good morning, everybody.
Scott, I guess with reference to your comments early on in terms of being well-positioned for 2017 with new and existing solutions, I was hoping you could maybe touch on some of the new ones you were referring to, and if that changes the – I guess the trend in the growth rates you are seeing right now, if there's any material pickup that we should expect in 2017.
Scott G. Stephenson - Verisk Analytics, Inc.
The innovations are very broadly based. They cover many, many different aspects of the insurance value chain, and I'll just reference a few, but there are really so many.
So we're working on helping our customers that are doing aggregate portfolio analytics with better portfolio tools. This relates in parts to what we added with Analyze Re.
We have platforms which speed up the underwriting process. We have new data sets, which relate to among other things, the underwriting of auto policies, which is related to the Telematics Data Exchange.
We're making better use of remote imagery in helping the claims and increasingly the underwriting processes to move ahead. We're bringing new forms of data management to the insurance vertical.
One of the things that – and Mark was referencing this before, the big data movements. Last year, I spent a good deal of time with the CEOs of our largest customers.
They are very interested in the nature of their technical environments. Everything from our potential conversion to more of a cloud basis, in terms of our computing being a primary consideration, but they realized that like a lot of companies in the world today, that we need to grow beyond the first version of the enterprise data warehouse movement, which was actually a late 1990s, early 2000 thing.
So these are very, very significant topics for our customers, and I can keep going on, the overlap between energy and insurance. So it's very broadly based and that's consistent with who we are basically.
We're very deeply engaged with our customers and so that's why we're able to move out on such a broad set of fronts. And Mark referenced before the macro environment, balancing the macro environment in the United States, as he said, is the fact that our ambitions are global and we've really had much less activity in non-domestic markets, but that's a factor which is here and which I believe will be increasingly significant as we go forward, so very pleased with where we sit.
Manav Patnaik - Barclays Capital, Inc.
Got it. And then in terms of a follow-up, just with respect to CapEx, again I guess if fell in 2016 at least on a dollar basis and it's ticking back up.
I mean, are there any unusual items in there or one-time-ish that need to be called out or just looking at it forward, should we think of 7.5% to 8% as the new normal for the CapEx spend?
Eva F. Huston - Verisk Analytics, Inc.
Hey, Manav, it's Eva. Good morning.
Just in terms of CapEx, I think, the numbers when you said it fell and it did not fall in dollars if you're looking on an apples-to-apples basis, remember we have continuing ops and we have the divestiture of Verisk Health. So I think as I said in the script, you actually saw dollar growth in the year.
The percentage was about 7.3% in the year, so as we've talked about we've been managing that CapEx. We had some investment over a several year period where it kind of peaked and now we're kind of bringing that back down.
What we're doing though really is we're striking the balance between being efficient with the dollars we're spending and ensuring that we're investing in that internally developed software, which is a lot of the platforming that we've been talking about.
Manav Patnaik - Barclays Capital, Inc.
Got it, thank you.
Eva F. Huston - Verisk Analytics, Inc.
You're welcome.
Operator
Your next question comes from the line of Andrew Steinerman with JPMorgan. Your line is open.
Andrew Charles Steinerman - JPMorgan Securities LLC
Eva, it's Andrew. Given the healthy margins in the fourth quarter, I wanted to know if the company is positioned to have margin expansion in 2017 including the comments that you made about FX in the small acquisitions.
Eva F. Huston - Verisk Analytics, Inc.
So thanks for the question, Andrew. I think as we think about EBITDA margins, as you know there are a mix of number of things that go in there.
FX is certainly a weight on margins and the acquisitions, as we said, the small tuck-ins, I think their margins are appropriate for the stage of development they're in, but they are a drag on margins. So while we're not giving specific guidance in terms of the margin, I would say that those are probably the balancing factors you should consider when you think about your model.
Andrew Charles Steinerman - JPMorgan Securities LLC
Could you give us a sense of size of those two factors?
Eva F. Huston - Verisk Analytics, Inc.
I think that if you were to think about – we gave you the dollars of revenue on FX. That's about a $25 million drag, just apples-to-apples, if we were to use constant currency here.
In terms of the acquisition margins, you can look just in the filings, we'll be happy to walk you through the math after the call, the margins for those, and so I think you'll be able to figure that into your model.
Andrew Charles Steinerman - JPMorgan Securities LLC
Okay, thank you.
Eva F. Huston - Verisk Analytics, Inc.
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.
Yeah, thank you. Just given the insurance industry comments, is the annual invoicing impact this year similar order of magnitude to past years to recent years?
Mark V. Anquillare - Verisk Analytics, Inc.
So this is Mark. I just want to make sure I have the question.
We have typically and traditionally invoiced around the holidays in anticipation of the future year. So this would be December of 2016.
Jeff P. Meuler - Robert W. Baird & Co., Inc.
Correct.
Mark V. Anquillare - Verisk Analytics, Inc.
Timing and everything is unchanged. I think the second part of your question, I'm going to read into it is that I think with every passing year we've started to engage with our biggest customers to put in place what are longer-term contracts that are unrelated to premium.
So what you'll see is a majority of that revenue that we would typically talk about in industry-standard programs is now unrelated to premium. It's all about a negotiated outcome.
If they want to add a new service, obviously, there would be additional fees to be charged. But everything is consistent with the past.
It's probably a little less focused on premium going forward.
Jeff P. Meuler - Robert W. Baird & Co., Inc.
Great. And then in terms of the increased cadence of tuck-in M&A, including a lot in the insurance vertical, is this just a moment in time where there's a flurry or is there something that's changed, whether it's culturally making everybody part of the M&A team or something about the end markets, something strategically, just a comment on the increased cadence of tuck-in M&A?
Scott G. Stephenson - Verisk Analytics, Inc.
You really answered your own question. We about, I don't know, maybe 18 months ago or so, we basically really began campaigning throughout the entire company for the notion that everybody is on the M&A team.
And what we mean by that specifically and relating this to the interest of our shareholders, because we're walking the hallways of our customers' offices on a daily basis, we actually have intelligence that is not available broadly in the world. And in specific, we get a chance to see other companies that are perhaps emerging and at least beginning to make a difference for our mutual customers.
And so we've really just hit very hard the idea that that intelligence is an additional source of value for our shareholders. And so we have really engaged at an even deeper level with the folks in our business units, and this is the result basically.
So no, I don't think that this is – it is a moment in time in the sense that we've put an increased emphasis on this at a point in time about 18 months ago. But I don't think it's a transient phenomenon.
I don't know that we'll always be putting points on the board at exactly this rate. We'll see how it goes, nor do we start with the assumption that it's all about size.
If they're strategic, we're happy to do midsized deals, large deals, smaller deals. But I would encourage you to think of the smaller deals as reflective of a very active strategy which is about expanding our source as a value for our customers.
And as Eva said in her remarks, there's just a balance here between buy and build, and we're very open to what gets us to the valuable place fastest. So no, not a moment in time although something did change in our environment.
Jeff P. Meuler - Robert W. Baird & Co., Inc.
Okay, thank you.
Scott G. Stephenson - Verisk Analytics, Inc.
You're welcome.
Operator
Your next question comes from the line of Andrew Jeffrey with SunTrust. Your line is open.
Andrew Jeffrey - SunTrust Robinson Humphrey, Inc.
Hi, good morning. Thank you for taking the question.
Scott G. Stephenson - Verisk Analytics, Inc.
You're welcome.
Andrew Jeffrey - SunTrust Robinson Humphrey, Inc.
I'm wondering just, Mark and Scott, as a follow-up on some of the competitive questions, particularly insurance. Is there anything you're seeing changing on the ground as far as new competition or new technology?
And I'm thinking specifically within underwriting and maybe even geospatial and aerial imaging.
Scott G. Stephenson - Verisk Analytics, Inc.
I wouldn't really point to new competition. I think that there are classes of folks that have money to invest who have been on the theme of insurance and are in and around it.
I think a couple of private equity players and then there are a couple of operating companies that have had the theme for a while. But when you look at the actual operations that are out there assembling information, creating solutions, et cetera, it's really a very slowly – almost no change actually in terms of the cast of characters.
So ownership may shift some, but the actual on-the-ground operation and delivery, I don't really see that changing very much. What you do have at the margin are some companies that come more from a big data horizontal methods approach and attempt to work their way into the insurance industry, actually not just the insurance industry, but if you think about all of our verticals, that's a theme out there, which is one of the reasons why we really beat the drum for vertically-oriented data analytics, because we really think that's a very strong place to stand and it's in the verticals the proprietary data grow up.
So there are those kinds of players who are out there. And of course there is technical innovation as well.
So for example, if you were to pick the category of drones, there is a list of companies who would like to help outfits you with one or two or three or five drones. That list of companies is as long as both of my arms.
But the literal difference that they're making in the insurance industry today is low, is very low, very modest. And so no, I don't really – the bottom line is and this is actually true of everything that we do, competition does not fundamentally determine our opportunity or what it is that we're doing.
It is all about our relationship with the customers and our ability to really understand their needs and harness methods and technology and data and get them to where they need to be. That is what makes the difference between – or spells the outcome in terms of, for example, our growth rate.
Andrew Jeffrey - SunTrust Robinson Humphrey, Inc.
Okay, that's helpful. Thanks.
And when I look at WoodMac with the churn in oil prices, I'm wondering if 2017 is likely to be a significantly more positive growth year, how are you thinking about your view on WoodMac business this year?
Scott G. Stephenson - Verisk Analytics, Inc.
Let me characterize generally and Eva might care to add something. But the point I really want to emphasize here is really the tremendous performance of Wood Mackenzie in the face of kind of historic conditions.
And I was impressed last year spending time with the CEOs and senior members of WoodMac's customer set as well as our others, was how much depth of relationship WoodMac enjoys, we enjoy with our customers and the regard that customers have for us. And a very active set of new product initiatives, which I think are aimed at just exactly where the industry is.
And so that's the bedrock. Those are the things which are really core.
But definitely the conditions in 2017 are better than they were in 2016 and 2016 was at least the stabilization relative to 2015. So yes, the environment's moving in the right direction.
And it's another part of our forward view of being very pleased with where we are with WoodMac. Eva, I don't know if you want to add anything to that?
Eva F. Huston - Verisk Analytics, Inc.
Yes, I was just going to add I think if you wanted to start with customer retention remained very high in 2016 despite what was obviously a challenging environment. And so that's really the basis on which we start to grow going forward, we start with the existing clients.
One thing just to keep in mind is, as Scott talked about, we have new products. There's lots of things that we can sell.
The fundamental base of WoodMac remains our subscription business. And so that will – as it creates stability in a downturn, it also takes a little while for that to kind of pick back up.
So I think we're very positive on WoodMac, just remember that subscriptions don't turn on a dime, but I think we're optimistic about 2017.
Andrew Jeffrey - SunTrust Robinson Humphrey, Inc.
Okay, that's helpful. Thanks a lot.
Operator
Your next question comes from the line of Hamzah Mazari with Macquarie Capital. Your line is open.
Hamzah Mazari, your line is open.
Kayvon Rahbar - Macquarie Group
Yes, hi. This is Kayvon.
I'm filling in for Hamzah. I have a question for you guys about the Decision Analytics business.
How much of that is subscription and how much room do you guys think you have for converting it – for conversion, how has that been going over time?
Eva F. Huston - Verisk Analytics, Inc.
I think what you'll see is, I mean, you will less subscription in Decision Analytics and Risk Assessments, but still a very, very high level, and overall we're at about 80%, 85% in the whole company. It's interesting, because I think what you tend to see is as we're converting certain parts of that business too from transactional to subscription, we're bringing in actually new solutions which tend to start transactional.
So I don't expect that over time you're going to see a grand shift in that as long as we're doing what we want to do which is create those new solutions.
Kayvon Rahbar - Macquarie Group
All right, thank you.
Eva F. Huston - Verisk Analytics, Inc.
You're welcome.
Operator
Your next question comes from the line of Toni Kaplan with Morgan Stanley. Your line is open.
Patrick T. Halfmann - Morgan Stanley & Co. LLC
Good morning, guys. This is Patrick in for Toni.
So the first question is I'm wondering if you guys are expecting financial services to achieve another year of double-digit growth in 2017.
Eva F. Huston - Verisk Analytics, Inc.
So as we think about our company, I think the way we've really framed it for the market is the total growth of the company and aiming for the organic growth that we've talked about historically rather than parsing it into individual segments. Certainly financial services has been a strong pro forma for us, and we think there are a lot of things going on within that area that are pretty exciting.
But I wouldn't put a specific growth rate on it at the moment for you.
Patrick T. Halfmann - Morgan Stanley & Co. LLC
Thanks. And then it looks like normalized free cash flow conversion ticked up a few points year-over-year but remained below the 60% of EBITDA target you've talked about in the past.
Is 60% still your target? And if so can you talk about some of the leverage you have to reach that goal?
Eva F. Huston - Verisk Analytics, Inc.
I'm not quite sure where the 60% target is coming from. I don't know that that's something that we've stated.
I think that we were very pleased with the conversion of the free cash flow. Clearly, there are just a couple of things that come out after you have EBITDA, I mean, you've got to pay taxes, so certainly we do that as we should.
I would say that the working capital remains a positive contributor there. CapEx would be the other offset.
So I think, fundamentally, we feel good about where we are in terms of free cash flow generation.
Patrick T. Halfmann - Morgan Stanley & Co. LLC
Got it. Thanks, Eva.
Eva F. Huston - Verisk Analytics, Inc.
Thank you.
Operator
Your next question from the line of Arash Soleimani with KBW. Your line is open.
Arash Soleimani - Keefe, Bruyette & Woods, Inc.
Thanks. Just a couple quick questions.
On Risk Assessment, specifically property-specific underwriting, the organic there seem to have ticked down a bit sequentially. I was just wondering if that was due to anything specific.
Mark V. Anquillare - Verisk Analytics, Inc.
So first of all, it's business as usual in property-specific. If you actually kind of look through 2016, you'll see the revenue there per quarter is anywhere from $42.4 million each quarter inching up about to about $42.7 million.
We did sign a couple nice contracts in fourth quarter of 2015, so that helped us in 2015, probably creates a bit of a grow over in the fourth quarter of 2016, but I think it's a wonderfully consistent business that's had some stable growth.
Arash Soleimani - Keefe, Bruyette & Woods, Inc.
Thanks. And just a last question still on Risk Assessment.
Is the hiring there basically complete now or is that still ongoing?
Mark V. Anquillare - Verisk Analytics, Inc.
It's a good question. I think we are getting through it, signing the right people.
We're very selective, and we had some new initiatives in Risk Assessment that we're excited by and we're going to probably bring in some talent to lead those efforts. So not completely done.
I think that will continue to have or add some expense inside of Risk Assessment as we progress through 2017.
Arash Soleimani - Keefe, Bruyette & Woods, Inc.
Thank you very much for the answers.
Eva F. Huston - Verisk Analytics, Inc.
Thanks.
Operator
Your next question comes from the line of Joseph Foresi with Cantor Fitzgerald. Your line is open.
Joseph Foresi - Cantor Fitzgerald Securities
Hi. I wanted to ask the growth rate question for the individual businesses a little bit differently.
Is there anything we should be aware of from a business perspective that would impact the present growth rate that we exited 2016, heading into 2017, obviously excluding the FX in those individual business lines?
Scott G. Stephenson - Verisk Analytics, Inc.
Yeah. I mean we're back to the same point we were on before, which is we've noted what's in the macro environment.
And Eva talked about currency, Mark talked about the in the moment condition of the insurance industry. I would just add the financial services companies are wondering where they're at right now.
U.S. financial services companies maybe on the one hand, there will be some deregulation, and on the other hand they've been dealing with mounting compliance requirements and have felt some squeeze on the bottom line, and we've talked about the environment in at WoodMac.
But the counterpoint to all of that is our program of investments, and creating new solutions and our ever deepening relationships with our customers. Those two things are the wellspring of our future performance.
Joseph Foresi - Cantor Fitzgerald Securities
Got it. Okay.
Scott G. Stephenson - Verisk Analytics, Inc.
And we feel very good about those things.
Joseph Foresi - Cantor Fitzgerald Securities
Okay. And how should we think about the breakdown or the focus of investments in 2017?
Anything you'd like to call out as areas that you're keenly focused on outside of the international growth? Thanks.
Eva F. Huston - Verisk Analytics, Inc.
Yeah. I mean I would say that we're investing across all the different verticals that we're in and pretty excited.
I think international growth is certainly a highlight as well. So I think it's pretty broad-based.
Scott G. Stephenson - Verisk Analytics, Inc.
We have noted for you all in the past that there is an increasing software intensity to our business which is essentially another way of saying that we're a solutions-oriented company. And I think that that's a true statement.
But we've moved into that position over the last couple of years. I think I don't know that the relative software intensity is going up from where we are, but that's a drumbeat inside the business.
Joseph Foresi - Cantor Fitzgerald Securities
Got it. Thank you.
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)
Thanks so much. And just looking at the cost of revenue in the quarter that you booked, it was fairly high compared to last year.
Were there any one-time items going on either this year or last year, and is this the kind of rate we should look for going forward in 2017?
Eva F. Huston - Verisk Analytics, Inc.
I think the best way to think about it is in aggregate. And as we think about the business and the cost of revenue versus SG&A, sometimes there are things that, that balance between those depending upon where we are in development versus implementation of those solutions.
So I don't think that there's any conclusion to draw from that as you look forward to 2017.
Jeffrey Marc Silber - BMO Capital Markets (United States)
So let me ask the question another way. If I take the combination of cost of revenue and SG&A again, the run rate that we saw in the fourth quarter would be something we'd use for 2017?
Eva F. Huston - Verisk Analytics, Inc.
I think that's certainly a starting point. Again, I think there are a number of things that go on within those numbers, but that would be the baseline (43:40).
Jeffrey Marc Silber - BMO Capital Markets (United States)
All right, and one more quick numbers question. What should we be looking forward for stock based compensation this year?
Eva F. Huston - Verisk Analytics, Inc.
I don't think that you'll see any grand shifts in that.
Jeffrey Marc Silber - BMO Capital Markets (United States)
Okay, great. Thanks so much.
Eva F. Huston - Verisk Analytics, Inc.
You're welcome.
Operator
Your next question comes from the line of Andre Benjamin with Goldman Sachs. Your line is open.
Andre Benjamin - Goldman Sachs & Co.
Thanks, good morning. I know you had a couple points about your international expansion goals being part of the M&A strategy, and I know you now have a hub in the UK on the back of the WoodMac acquisition.
I was just wondering how we should think about your focus on UK businesses as opposed to other parts of the EU, given each country there operates very locally.
Scott G. Stephenson - Verisk Analytics, Inc.
Yeah, so let me start there and then maybe Mark will fill in with a little bit of detail around the insurance vertical specifically. But at the general level, first of all, we have beefed up our corporate development capability in Europe and we're in the process of beefing it up in Asia as well, so it's really an around-the-globe view of our opportunities.
And that expresses itself both as acquisition. You've seen some of that in the more recent acquisitions, also partnerships, and we really like both flavors and we'll be spending time on both of those flavors.
But I really compliment the question, Andre, because it really is the case that if you are a data analytic company and you take the data dimension of the data analytic agenda seriously, then you have to find this third way to operate basically if you want to be global, because there's the one form which is you make it wherever, Copenhagen, Detroit, whatever, and you export it around the world. That tends to relate more to physical goods.
And then there's the second form, which is just you become utterly local, completely local in what it is you do, and the whole really doesn't become greater than the sum of the parts. If you're a high intellectual property company with the databases, you actually have to find a third way, which is you can manufacture your methods centrally.
But I think in line with what you're trying to get at, you actually have to occupy each marketplace because there is in the world today and will be in the world increasingly in the future what I call data nationalism. Most countries work very hard to make sure that their data physically resides in their country.
And in fact, the follow-on to the Safe Harbor in the EU was just a particular example of the general case, where there's just concern about where do our data physically reside. And so you do actually have to become local in order to have access to the data.
So you have to be the third way or we have to be the third way anyway. And so we're working very hard on that, and that is everything from where we place our people to how we deploy our people.
And so here's where I now want to turn it to Mark because he led us through a very significant reorganization towards the end of last year with respect to our go-to-market folks in overseas markets. So, Mark, maybe you want to talk about that, including how broadly based this particular program is.
Mark V. Anquillare - Verisk Analytics, Inc.
Thanks, Scott. So I think what we've tried to do is identify markets that are, A), mature and like the U.S.
markets. That's where our solutions act and feel the best.
Obviously, we have the focus on some of the emerging markets too, but where we're currently putting most of our resources is also where we have customers, so that we have the ability to follow a customer to different geographies. So that focus has led us to really take a lot of people who have been typically in different business units and put them into what we refer to as our global business development teams.
And those teams are working across all of our insurance operations to really focus in on different markets and opportunities across all the solutions we offer. So that reorg provides us with a focus on customer, better relationship with customer, and talking about Verisk, not individual point solutions, and that's starting to make a difference.
The other thing I'll just contribute, and by the way, those business development teams are across the world. You had brought up UK as an example.
Clearly the UK market feels the most like the U.S. market.
There's a lot of movement between risks between London and the U.S. And as a result, we're most dedicated and most focused right now on the UK.
And you can see that not just from an organic perspective, but some of the acquisitions we've done, whether it's with GeoInformation, Healix, even Arium is from the UK. So we think we're starting to make a difference and we are very much focused on bringing that opportunity, I call that third dimension to the cube here into a positive and profitable light here over the course of the next couple of years.
Scott G. Stephenson - Verisk Analytics, Inc.
Maybe that's more than you expected, Andre, but we really care about this trend actually. You bumped into something that we do a lot of work on.
Mark V. Anquillare - Verisk Analytics, Inc.
We're glad to spend the time. Thank you for the question.
Andre Benjamin - Goldman Sachs & Co.
Thanks.
Operator
Your next question comes from the line of David Chu with Bank of America. Your line is open.
David J. Chu - Bank of America Merrill Lynch
Good morning, thank you. So last quarter, you highlighted that there were some delays in implementation of contracts that have already been signed.
Can you just provide an update on this?
Eva F. Huston - Verisk Analytics, Inc.
Yeah. I think that we're progressing as expected.
That's really a comment as its related to the revenue that would be received in 2016.
David J. Chu - Bank of America Merrill Lynch
Okay, got it. And then in regards to WoodMac, you didn't lose too many clients despite lower oil prices in 2016.
So does this suggest that we shouldn't expect a meaningful lift to client count this year, despite higher oil prices?
Eva F. Huston - Verisk Analytics, Inc.
I'm sorry, you cut out just for a second we shouldn't expect, could you repeat that part?
David J. Chu - Bank of America Merrill Lynch
Like a significant lift to client count this year, despite higher oil prices.
Eva F. Huston - Verisk Analytics, Inc.
Well, I actually think that we've expanded, and I know that Steve Halliday spoke about this on Investor Day. We've actually expanded our customer base, fairly significantly through some of the new solutions and companies that we've brought into the WoodMac mix.
So actually what we're looking to do is, we're looking to grow those customers into broader solution purchases throughout WoodMac. So I think you have to think about the customer base a little more broadly than just the core you might have thought about when WoodMac first came into the family.
David J. Chu - Bank of America Merrill Lynch
Okay, got it. Thank you.
Eva F. Huston - Verisk Analytics, Inc.
Thank you.
Operator
Your next question comes from the line of Gary Bisbee with RBC. Your line is open.
Gary Bisbee - RBC Capital Markets LLC
Hi. Good morning.
If I could just go back to the international insurance strategy and opportunity over time, it seems to me, the key to the U.S. business or one of the keys is certainly the consortia data model that you've built.
And unless I'm misunderstanding this, you really haven't had success creating organically the same level of consortia dataset to be the core in any other market, and I know you've talked about doing that successfully with the Argus business in other geographies. So why have you not been able to do that?
What's the gating factor? And maybe more forward-looking optimistically what's the outlook for doing that to deliver the kind of business that you have here in the U.S.
over time? Thank you.
Scott G. Stephenson - Verisk Analytics, Inc.
Let me just put your question in a slightly different context, which is we continue to feel that proprietary data is an advantage and one that we always pursue. We recite it as one of the four distinctives, so it's always there in our minds.
There are two ways that you can build a proprietary dataset. One is you can have an a priori discussion with the market you're trying to serve and essentially get agreement that let's all join hands and take the plunge together and start putting our data into one place where we haven't previously put it.
That's the history of our early roots in the insurance industry. Argus has proven to be very effective at doing that.
Wood Mackenzie is always about proprietary data, and it ends up being a consortium, but I want to relate it now to the second way that you can build a dataset, which is you can also go customer-by-customer. And you provide them solutions and as a part of having earned their trust, you ask for the opportunity to use and repurpose the data, which is flowing through your application.
We do it both ways. We've always done it both ways.
And in some markets that maybe that we can leap straight to the consortia, Argus has had particular success at that. And in other markets, whether they're defined by vertical or geography, we may have to do more of the second method which is on a customer-by-customer basis.
So I just want you to have that perspective because we don't – we never lose sight of the goal to create proprietary data assets. It's more a question of how you go about it.
Specific to the insurance industry, what goes on particularly, as you look at, I'd say especially Europe, is you've got differences in terms of both regulation and market structure. And of course those two things go together, regulation has an effect on market structure.
And essentially Europe, European primary P&C markets generally tend to be more concentrated. And so the larger share player is naturally going to say, let me think about it a little bit more before I make my data available.
And so that's really just a condition that we deal with, but we're not deterred in the least in terms of trying to move towards proprietary data assets. It's just the pathway maybe a little bit different.
Gary Bisbee - RBC Capital Markets LLC
And so what are the long term implications about the potential profitability of an insurance business overseas, given that concentration? Should we read into that, that it's unlikely even at scale to achieve the margins you've done here in the U.S.?
Scott G. Stephenson - Verisk Analytics, Inc.
No, I would not draw that conclusion. If you look at the most profitable parts of what we do whether it's in insurance or other places, there is a very nice mix of businesses which are built on our priority consortia data, and businesses which are not built on our priority consortia data.
So you can get there both ways.
Gary Bisbee - RBC Capital Markets LLC
Okay, great. That's helpful.
Thank you.
Operator
There are no further questions at this time. I will turn the call back over to the presenters.
Scott G. Stephenson - Verisk Analytics, Inc.
Okay. Thanks, everybody, for your time and your interest today.
I know that we're going to be – we'll be following up with several of you even later today. We're going to have events in the course of the coming months.
Some of you'll come see us in the office, and we're looking forward to being with you. So thanks for your time today.
Operator
This concludes today's conference call. You may now disconnect.