Elizabeth Mann
Chief Financial Officer at Verisk Analytics
Thanks, Lee, and good day to everyone on the call. Before I start with the fourth quarter results, I have a few reminders for everyone. First, all consolidated and GAAP numbers are negatively impacted by the dispositions of 3E and Verisk Financial Services. This effect will continue through the first quarter of 2023 when we will anniversary those transactions. Second, as we described previously, due to its materiality, Wood Mackenzie is accounted for as discontinued operations beginning this quarter, and its results are not included in our revenue or adjusted EBITDA results in either the current period or the prior period. Third, in the earnings presentation now posted on the Investors section of our website, we have included certain pro forma quarterly financial metrics. We're moving the operational results of all our divestitures as well as the reconciliation to our historical reported results which we hope you will find helpful.
Turning now to the financial results, I'm pleased to share that we had a strong finish to 2022. For the fourth quarter on a consolidated and GAAP basis, revenue was $630 million up slightly versus the prior year, reflecting growth in insurance, offset by the impact of the VFS and 3E disposition. Income from continuing operations was $216 million while diluted GAAP earnings per share attributable to Verisk was $137 million.
Moving to our organic constant currency results, adjusted for non-operating items as defined in the non-GAAP financial measures section of our press release, we are very pleased with our operating results, which demonstrated strong sequential improvement relative to the third quarter as a broad-based recovery across our business contributed to the strongest quarter of the year. In the fourth quarter, OCC revenues grew 8.1% with growth of 6.5% in underwriting and rating and 11.9% in claims. This quarter's results included $5.6 million in storm-related revenue associated with Hurricane Ian. Excluding the storm-related revenues, OCC revenue would have grown 7.1%.
Our subscription revenues which comprise 80% of our total revenue in the quarter grew 7.2% on an OCC basis. We saw a broad based growth across most of our businesses with strength in core underwriting, property estimating solutions, extreme events, anti-fraud, and life insurance solutions. We did experience a modest negative impact from the liquidations in Florida. As we noted in previous calls, Florida has been a trouble spot for the insurance industry and the losses from Hurricane Ian add complication. In 2022, the markets saw six liquidation and so far in '23, we have seen one company placed into receivership after higher-than-expected losses from Hurricane Ian plus the carrier into insolvency.
We continue to work to offset this headwind through engagement with our customers by helping them adapt to Florida's new roof coverage rules and by better segmenting risk using both new and existing sources such as our roof age data and aerial inventory. Our analytics have been integrated into our LightSpeed platform and can help customers leverage data earlier in their coding process, ensuring they underwrite risk appropriately as well as help drive non-rate action for in-force policies.
Transactional OCC revenue growth of 1201% representing 20% of total revenue in the fourth quarter also improved from the third quarter reflecting the revenues associated with Hurricane Ian. Adjusting for the storm impact, transactional growth with a healthy 8.2% comprised of continued strong recovery in international travel, strong sales of life insurance solutions and a modest contribution from our workers' compensation business which is improving though continues to be below pre-pandemic level.
This was offset in part by continued weakness across auto underwriting and marketing solutions. On the auto underwriting side, we continue to see cyclical softness across our auto underwriting and marketing solutions as carriers are dealing with the impact of rising inflation and increasing loss ratios. To that end, carriers have pulled back on underwriting new auto policies as well as on marketing spending to drive new policy volume and customer acquisition. Carriers are working to reset pricing which we think could take another six to 12 months to truly take effect.
To help our customers bridge this uncertain time and drive growth for Verisk, we are working with them to help identify ways to improve profitability with targeted non-rate actions that minimize premium leakage. We are actively engaging with customers about our risk check renewal product which allows insurance -- which allows insurer to analyze an entire book of business with minimal IT resources and pinpoint policies that require attention.
Moving now to our adjusted EBITDA results. OCC adjusted EBITDA growth was 12.9% in the fourth quarter, reflecting core operating leverage and the impact of certain cost-reduction actions we have taken in connection with our margin expansion objective. Total adjusted EBITDA margin which includes both organic and inorganic results was 52.7% up 210 basis points from the reported results in the prior year, reflecting the benefit from recent dispositions, strong cost and operational discipline, the impact of certain cost reduction action and the high incremental margins associated with storm-related revenue. This level of margin also includes the number of margin headwinds, including approximately 110 basis points from recent acquisitions, as well as 80 basis points from the headwinds from our ongoing technological transformation and higher T&E expenses. In addition, this quarter included certain one-time or non-operating expenses including severance, FX impact, and a decrease in our pension credit, which collectively negatively impacted margins by 190 basis points.
Finally, if you could compare the fourth quarter margins on a pro forma basis for all divestitures, the 4Q 2022 margins of 52.7% represent an 80 basis point margin expansion from 51.9% in the fourth quarter of 2021 pro forma. Reflecting on our objective to deliver 300 basis points to 500 basis points of margin improvement in 2024 from a normalized base of 50% to 51% in 2021, we took great strides in 2022 with full year adjusted EBITDA margin of 52% on a pro forma basis, reflecting approximately 140 basis points of margin expansion associated with our operational excellence focus.
To date, we have made decisions and taken action to address more than 60% of the run-rate cost savings we are targeting. The impact of those actions will be realized through 2024 with about 30% of the cumulated expected cost savings already achieved in the reported results in 2022. Our business continues to demonstrate the operating leverage embedded in our data analytics business model, and we have confidence in our ability to deliver on the objectives in 2024.
Interest expense. Interest expense totaled $41 million for the fourth quarter compared to $30.2 million in the prior year. For the full year, interest expense totaled $139 million versus $127 million in 2021. This increase in interest expense is related to higher balances on our revolving credit facility as well as higher interest rates. We have paid off all borrowings under our credit facility as of February 2023, and in the near term, we'll look to establish the go-forward balance sheet for the business, staying within our targeted leverage range of 2 times to 3 times adjusted EBITDA.
Taxes. Our reported effective tax rate was 9.9% compared to 16.8% in the prior year quarter. This lower tax rate included a one-time benefit of approximately $30 million which was primarily the result of transaction benefits related to our Wood Mackenzie divestiture, offset in part by lower stock compensation benefits versus the prior year period. For the full year '22, our effective tax rate was 17.5%, as compared to 22.8% in the prior year, including approximately $67.7 million in benefits related to all our dispositions throughout the year. The net effect of these transaction-related tax benefits with a reduction in our full year effective tax rate of 5.4%.
Adjusted net income and diluted adjusted EPS. Adjusted net income increased 14% to $225 million and diluted adjusted EPS increased 18% to $1.43 for the fourth quarter of '22. These changes reflect organic growth in the business, contributions from acquisitions, a lower effective tax rate, and a lower average share count.
Capital return. During the fourth quarter, we returned $514 million in capital to shareholders through share repurchases and dividends as our strong cash flow allows us to consistently return capital to shareholders, while also investing in our business. In particular, included in that amount is $366 million of share repurchases we have completed since the announcement of the Wood Mackenzie transaction back in November. In the coming days, we intend to enter into an additional $2.5 billion accelerated share repurchase agreement for a total capital return of $2.87 billion associated with the transaction proceeds. This is consistent with our plan to return the majority of the proceeds from the Wood Mackenzie divestiture to shareholders via share repurchases. We continue to expect the dilution from the transaction to be within the 4% to 6% range.
Looking ahead to 2023, as Lee mentioned, we have listened to shareholder feedback, and will now be providing annual financial guidance. We have posted a summary of all guidance measured in the earnings deck on the Investors section of our website, verisk.com. Specifically, for 2023, we expect consolidated revenue to be in the range of $2.59 billion to $2.63 billion versus $2.437 billion in 2022 pro forma. We expect adjusted EBITDA to be in the range of $1.37 billion to $1.42 billion versus $1.266 billion in 2022 pro forma, and adjusted EBITDA margins to be in the range of 53% to 54%.
Working further down the P&L, we expect fixed asset D&A to be between $175 million and $195 million, and intangible amortization to be approximately $70 million. Both depreciation and amortization elements are subject to FX variability, the timing of purchases, the completion of projects, and future M&A activity. We also expect capital expenditures to be between $200 million and $230 million, as we continue to invest organically behind our highest return on investment opportunities. These include a modernization of our core line services to digitize our industry standard offering and enable expansion into new workflows that improve productivity for the industry. We are also investing in an upgrade of our financial and human capital system that will enable future efficiencies once implemented.
As previously communicated, we expect the tax rate to be in the range of 23% to 25%, bringing adjusted earnings per share to a range of $5.20 to $5.50. This range represents strong double-digit growth rates on EPS, after normalizing for the impact of transaction tax benefits in 2022.
Before I turn the call over to Lee, I just want to remind everyone that we will be hosting an Investor Day on March 14th, here in Jersey City, where we will provide more transparency and clarity on our strategic profile, growth drivers, and long-term financial target.
And now, I will turn the call back over to Lee for some closing comments.
